Documente Academic
Documente Profesional
Documente Cultură
14 October 2016
INDEX
Executive Summary 4
1. INTRODUCTION 27
2. THE COMPLAINT 29
4. THE INVESTIGATION 45
WITH 284
7. OBSERVATIONS 343
9. MONITORING 355
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Executive Summary
(i) “State of Capture” is my report in terms of section 182(1)(b) of the Constitution of the
Republic of South Africa, 1996, and section 3(1) of the Executive Members Ethics
Act and section 8(1) of the Public Protector Act, 1994.
(ii) This report relates to an investigation into complaints of alleged improper and
unethical conduct by the president and other state functionaries relating to alleged
improper relationships and involvement of the Gupta family in the removal and
appointment of ministers and directors of State Owned Entities (SOEs) resulting in
improper and possibly corrupt award of state contracts and benefits to the Gupta
family’s businesses.
(iii) The Public Protector received three complaints in connection with the alleged
improper and unethical conduct relating to the appointments of Cabinet Ministers,
Directors and award of state contracts and other benefits to the Gupta linked
companies.
(iv) The investigation is conducted in terms of section 182 of the Constitution read with
sections 6 and 7 of the Public Protector Act, 1994.
Key allegations
(vi) The investigation emanates from complaints lodged against the President by Father
S. Mayebe on behalf of the Dominican Order, a group of Catholic Priests, on 18
March 2016 (The First Complainant); Mr. Mmusi Maimane, the leader of the
Democratic Alliance and Leader of the Opposition in Parliament on 18 March 2016
(The Second Complainant), in terms of section 4 of the Executive Members’ Ethics
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Act, 82 of 1998 (EMEA); and a member of the public on 22 April 2016 (The third
Complainant), whose name I have withheld.
(vii) The complaints followed media reports alleging that the Deputy Minister of Finance,
Hon. Mr. Mcebisi Jonas, was allegedly offered the post of Minister of Finance by the
Gupta family long before his then colleague Mr. Nhlanhla Nene was abruptly
removed by President Zuma on December 09, 2015. The post was allegedly offered
to him by the Gupta family, which alleged has a long standing friendship with
President Zuma’s family and a business partnership with his son Mr. Duduzane
Zuma. The offer allegedly took place at the Gupta residence in Saxonwold, City of
Johannesburg Gauteng. The allegation was that Ajay Gupta, the oldest of three
Gupta brothers who are business partners of President Zuma’s son, Mr. Duduzane
Zuma, in a company called Oakbay, among others, offered the position of Minister of
Finance to Deputy Minister Jonas and must have influenced the subsequent removal
of Minister Nene and his replacement with Mr. Des Van Rooyen on 09 December
2015, who was also abruptly shifted to the Cooperative Governance and Traditional
Affairs portfolio 4 days later, following a public outcry.
(viii) The media reports also alleged that Ms. Vytjie Mentor was offered the post of
Minister for Public Enterprises in exchange for cancelling the South African Airways
(SAA) route to India and that President Zuma was at the Gupta residence when the
offer was made and immediately advised about the same by Ms. Mentor. The media
reports alleged that the relationship between the President and the Gupta family had
evolved into “state capture” underpinned by the Gupta family having power to
influence the appointment of Cabinet Ministers and Directors in Boards of SOEs and
leveraging those relationships to get preferential treatment in state contracts, access
to state provided business finance and in the award of business licenses.
(ix) Specific allegations were made and these are detailed below.
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(x) The First Complainant, relying on media reports, requested an investigation into:
(a) The veracity of allegations that the Deputy Minister of Finance Mr Jonas and
Ms Mentor (presumably as chairpersons of the Portfolio Committee of Public
Enterprises) were offered Cabinet positions by the Gupta family;
(b) Whether the appointment of Mr Van Rooyen to Minister of Finance was known by the
Gupta family beforehand;
(c) Media allegation that two Gupta aligned senior advisors were appointed to the
National Treasury, alongside Mr Van Rooyen, without proper procedure; and
(d) All business dealings of the Gupta family with government departments and SOEs to
determine whether there were irregularities, undue enrichment, corruption and
undue influence in the awarding of contracts, mining licenses, government
advertising in the New Age newspaper, and any other governmental services.
(xi) The second Complainant also relying on the same media reports, requested an
investigation into the President’s role in the alleged offer of Cabinet positions to
Deputy Minister Jonas and MP, Ms. Mentor, and that the investigation should look
into the President’s conduct in relation to the alleged corrupt offers and Gupta
family involvement in the appointment of Cabinet Ministers and Directors of SOE
Boards.
(xii) In his complaint, Mr. Maimane stated amongst other things that:
“Section 2.3 of the Code of Ethics states that Members of the Executive may not:
(a) Willfully mislead the legislature to which they are accountable…(c) act in a way
that is inconsistent with their position; (d) use their position or any information
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(b) It is our contention that President Jacob Zuma may have breached the
Executive Ethics Code by (i) exposing himself to any situation involving the
risk of a conflict between their official responsibilities and their private
interests; (ii) acted in a way that is inconsistent with his position and (iii)
use their position or any information entrusted to them, to enrich
themselves or improperly benefit any other person”, he further stated. (my
emphasis).
(xiii) The third complaint was also based on media reports but only those alleging that the
Cabinet had decided to get involved in holding banks accountable for withdrawing
banking facilities to Gupta owned companies. The Complainant wanted to know if it
was appropriate for the Cabinet to assist a private business and on what grounds
was that happening. He asked if corruption was not involved and specifically asked if
such matters should not be dealt with by the National Consumer Commission or the
Banking Ombudsman.
(xiv) While the investigation was conducted in terms of section 182 of the Constitution of
the Republic of South Africa, 1996 (the Constitution), which confers the Public
Protector power to investigate, report and take appropriate remedial action in
response to alleged improper or prejudicial conduct in state affairs, the alleged
improper conduct of President Zuma involving potential violation of the Executive
Ethics Code, was principally investigated under section 3(1) of the Executive Ethics
Code read with section 6 of the Public Protector Act. The provisions of the
Prevention and Combatting of Corrupt Activities Act were invoked with regard to
allegations regarding the alleged offer of a Ministerial position by the Gupta family to
Ms. Mentor in return for cancelling the India route of the SAA, in the vicinity of
President Zuma, and related allegations. Deputy Minister Jonas also alleged that the
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position offered was on condition that he works with the Gupta family and that too is
in contravention of the Prevention and Combating of Corrupt Activities Act 12 of 2004
(PRECCA). The provisions of the Protected Disclosures Act, 26 of 2000 were also
taken into account.
(xv) I decided to combine the complaints and have since conducted an investigation
under section 182 of the Constitution which confers on the Public Protector the power
to investigate any alleged or suspected improper or prejudicial conduct, to report on
that conduct and to take appropriate remedial action; and in terms of section 3(1) of
the EMEA which places a peremptory duty on the Public Protector to investigate
allegations of unethical conduct or violations of the Executive Ethics Code by the
President and other Members of the Executive. The Complaint is also investigated in
terms of section 7(1) of the Public Protector Act, which regulates the Public
Protector’s exercise of her/his investigative powers.
(a) to investigate any conduct in state affairs, or in the public administration in any
The Public Protector must investigate any alleged breach of the code of ethics on
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(xviii) The investigation was principally undertaken because of the Second Complainant
having lodged his complaint under the EMEA, which does not allow the Public
Protector discretionary power to consider whether or not to investigate a matter
falling under his/her jurisdiction. Given that the Executive Members’ Ethics Act
requires investigations under it to be concluded within 30 days, the investigation was
given priority. It was also given priority because of the allegations having the potential
of undermining public trust in the Executive and SOEs. Additional resources were
requested from government with a view to handling it like a Commission of Inquiry
and R1.5 million was allocated by the Department of Justice and Correctional
Services for this purpose.
(xix) The investigation process was informed by the provisions of sections 6 and 7 of the
Public Protector Act, 1994 (Public Protector Act). Section 6(4) recognises the power
of the Public Protector to conduct own initiative investigations while section 6(5)(a)
and (b) of the Public Protector Act specifically recognises the Public Protector’s
investigate any maladministration in connection with the affairs of any institution in
which the state is the majority or controlling shareholder or of any public entity as
defined in section 1 of the Public Finance Management Act 1 of 1999 (PFMA); and
abuse or unjustifiable exercise of power or unfair, capricious, discourteous or other
improper conduct. Section 7 details the processes that may be followed, which
involves an inquisitorial process that includes requests for information, subpoenas
and interviews.
(xx) The complaint relates to allegations of improper conduct in state affairs and unethical
conduct by the President of the Republic, and other state functionaries and
accordingly falls within my ambit as the Public Protector. None of the parties
challenged the jurisdiction of the Public Protector.
(xxi) Based on an analysis of the complaint, the following issues were identified as
relevant for investigation:
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d) Whether President Zuma has enabled or turned a blind eye, in violation of the
Executive Ethics Code, to alleged corrupt practices by the Gupta family and
his son in relation to allegedly linking appointments to quid pro quo conditions;
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Gupta family and his son to be given preferential treatment in the award of
state contracts, business financing and trading licences; and
Awarding of contracts by certain organs of state to entities linked to the Gupta family
a) Whether any state functionary in any organ of state or other person acted
unlawfully, improperly or corruptly in connection with the appointment or
removal of Ministers and Boards of Directors of SOEs;
b) Whether any state functionary in any organ of state or other person acted
unlawfully, improperly or corruptly in connection with the award of state
contracts or tenders to Gupta linked companies or persons;
c) Whether any state functionary in any organ of state or other person acted
unlawfully, improperly or corruptly in connection with the extension of state
provided business financing facilities to Gupta linked companies or persons;
d) Whether any state functionary in any organ of state or other person acted
unlawfully, improperly or corruptly in connection with exchange of gifts in
relation to Gupta linked companies or persons; and
e) Whether any person/entity was prejudiced due to the conduct of the said
state functionary or organ of state.
(xxii) The approach to the investigation was an inquisitorial process which asked questions
raised about the President’s conduct: What happened? What should have
happened? Is there a discrepancy between what happened and what should have
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(xxiii) I must also indicate that the investigation has been divided into two phases and that
the first phase of the investigation did not touch on the award of licenses to the Gupta
family and superficially touched on state financing of the Gupta-Zuma business while
only selecting a few state contracts. The division of work was to accommodate the
time and resource limitations by addressing the pressing questions threatening to
erode public trust in the Executive and SOEs while mapping the process for the
second and final phase of the investigation.
(xxiv) The investigation process included correspondence with key parties implicated by the
allegations and potential witnesses, with the President having been the first to be
advised by myself in writing between March and April 2016, of the allegations being
made and provided with copies of the first two complaints immediately after the
complaints were lodged. President Zuma was also advised on 22 April 2016 and
before the expiry of the mandatory 30 days for the completion of the investigation
that it was not going to be possible to conclude the investigation within 30 days due
to resources and communication challenges.
(xxv) Interviews were conducted with identified key witnesses, commencing with alleged
whistle-blowers, Deputy Minister of Finance Mr Jonas and Ms Mentor, who confirmed
their status as whistle-blowers. The investigation team also interviewed Mr Maseko,
who was also identified by the media as a whistle-blower. Interviews were also
conducted with several other ministers and other selected witnesses. Documents
were requested from appropriate persons and institutions and analysed and
evaluated together with the oral evidence to establish if any of the allegations could
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(xxvi) In that regard the following people were issued with notices in terms of section 7(9) of
the Public Protect Act:
(xxvii) Regarding the standard that was expected of President Zuma as the President of
South Africa and the sole custodian of Executive Authority of the republic, the
provisions of sections 96, 195 and 237 of the Constitution were taken into account
together with the provisions of the Executive Ethics Code, Section 6 of the Public
Protector Act and general principles of good governance as outlined below.
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(xxix) Key laws and policies taken into account to help me determine if there had been any
improper and unethical conduct by the President and/or officials of the implicated
State Organs due to their alleged inappropriate relationship with members of the
Gupta family were principally those governing the conduct of members of the
Executive (Executive Members Ethics Act, 1998 and Executive Ethics Code), the
Constitution, policies governing procurement by the State and its organs, the Public
Finance Management Act, the Companies Act King III Report on Corporate
Governance, the Prevention and Combatting of Corrupt Activities Act and relevant
National Treasury prescripts.
(xxx) Having considered the evidence uncovered during the investigation against the
relevant regulatory framework, I make the following observations:
(a) President Zuma was required to select and appoint Ministers lawfully and
in compliance with the Executive Ethics Code.
(b) It is worrying that the the Gupta family was aware or may have been aware
that Minister Nene was removed 6 weeks after Deputy Minister Jonas
advised him that he had been allegedly offered a job by the Gupta family in
exchange for extending favours to their family business.
(c) Equally worrying is that Minister Van Rooyen who replaced Minister Nene
can be placed at the Saxonwold area on at least seven occasions including
on the day before he was announced as Minister. This looks anomalous
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(d) Furthermore one of the two advisers he brought with to National Treasury
on his first day at work, 11 October 2015 had contact with someone at the
Saxonwold area the day before.
(f) Another worrying coincidence is that Minister Nene was removed after Mr
Jonas advised him that he was going to be removed.
(g) If the Gupta family knew about the intended appointment it would appear
that information was shared then in violation of section 2.3(e) of the
Executive Ethics Code which prohibits members of the executive from the
use of information received in confidence in the course of their duties or
otherwise than in connection with the discharge of their duties.
(h) The provision of Section 2.3(c) which prohibits a member of the Executive
from acting in a way that is inconsistent with their position. There might
even be a violation of Section 2.3(e) of the Executive Ethics Code which
prohibits a member of the Executive from using information received in
confidence in the course of their duties otherwise than in connection with
the discharge of their duties.
(i) In view of the fact that the allegation that was made public included Mr
Jonas alleging that the offer for a position of Minister was linked to him
being required to extend favours to the Gupta family. Failure to verify such
allegation may infringe the provisions of Section 34 of Prevention and
Combatting of Corrupt Activities Act, 12 of 2004 which places a duty on
persons in positions of authority who knows or ought reasonably to have
known or suspected that any other person has committed an offence under
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the Act must report such knowledge or suspicion or cause such knowledge
or suspicion to be reported to any police official.
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(a) A similar duty is imposed and possibly violated in relation to the allegations
that were made by Mr Maseko about his removal. The same to applies to
persistent allegations regarding an alleged cozy relationship between Mr
Brian Molefe and the Gupta family. In this case it is worth noting that such
allegations are backed by evidence and a source of concern that nothing
seems to have been done regardless of the duty imposed by Section 195
of the Constitution on relevant State functionaries.
(b) While not relevant to the alleged influence of the Gupta family, the
allegations made by Ms Hogan also deserve a closer look to the extent
that they suggest Executive and party interference in the management of
SOEs and appointments thereto.
(b) If this observation is correct then the provisions of section 2.3 (c) of the
Executive Ethics Code may have been infringed as alleged.
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(a) The allegations raised by both Messrs Jonas and Maseko are relevant as
is action taken and/or not taken in relation thereto.
(a) Deputy Minister Jonas would be regarded as a liar and publicly humiliated
unless he is vindicated in his public statement that Mr Ajay Gupta offered
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8. Whether any state functionary in any organ of state or other person acted
unlawfully, improperly or corruptly in connection with the appointment or
removal of Ministers and Boards of Directors of SOEs
(a) It appears that the Board at Eskom was improperly appointed and not in
line with the spirit of the King III report on good Corporate Governance.
(b) Even though certain conflicts may have arisen after the Board was
appointed, there should have been a mechanism in place to deal with the
conflicts as they arose and managed actual or perceived bias.
(c) A Board appointed to an SOE, is expected to act in the best interests of the
Republic of South Africa at all times and it appears that the Board may
have failed to do so.
(d) It appears as though no action was taken on the part of the Minister of
Public Enterprise as Government stakeholder to prevent these apparent
conflicts.
(a) Minister Zwane’s conduct with regards to his flight itinerary to Switzerland
appears to be irregular. This may not be in line with the PFMA.
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(b) It appears that Minister Zwane’s conduct may not be in line with section
96(2) of the Constitution and section 2 of the Executive Members Ethics
Act.
(c) In light of the extensive financial analysis conducted, it appears that the
sole purpose of awarding contracts to Tegeta to supply Arnot Power
Station, was made solely for the purposes of funding Tegeta and enabling
Tegeta to purchase all shares in OCH. The only entity which appears to
have benefited from Eskom’s decisions with regards to OCM/OCH was
Tegeta which appears to have been enabled to purchase all shares held in
OCH. The favourable payment terms given to Tegeta (7 days) need to be
examined further. OCM clearly had 30 day payment terms with Tegeta for
the supply of coal to Arnot Power Station, and Eskom appears to have
been aware of this. It also appears that Tegeta did not meet all its
obligations to OCM as OCM was owed R 148,027,783.91 by Tegeta as at
31 July 2016 and an amount of R 289,842,376.00 as at 31 August 2016.
(e) It appears that the Eskom Board did not exercise a duty of care, which may
constitute a violation of section 50 of the PFMA.
(f) Eskom’s awarding of the initial contracts to Tegeta to supply coal to the
Majuba Power Station will form part of the next phase of the investigation.
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10. Whether any state functionary in any organ of state or other person
acted unlawfully, improperly or corruptly in connection with the
extension of state provided business financing facilities to Gupta linked
companies or persons;
(a) The prepayment to Tegeta in the amount R659 558 079.00 (six hundred
and fifty nine million five hundred and fifty eight thousand seventy nine
rand) inclusive of VAT, may not be in line with the PFMA. This is evidenced
in the BRP’s section 34 report in which it is stated that the prepayment was
not used to fund OCM, it is further emphasised in the financial analysis
which shows the prepayment was used entirely for the purposes of funding
the purchase of all shares in OCH. On 11 April 2016, Tegeta informed the
BRP’s and Glencore, who in turn informed the Loan Consortium that they
were R600 million short, on the very same day, Eskom held an urgent
Board Tender Committee meeting at 21:00 in the evening to approve the
prepayment which was R659 558 079.00 (six hundred and fifty nine million
five hundred and fifty eight thousand seventy nine rand and 38 cents)
inclusive of VAT.
(b) The Eskom Board does not appear to have exercised a duty of care or
acted, which may constitute a violation of section 50 of the PFMA.
(c) Tegeta’s conduct and misrepresentations made to the public with regards
to the prepayment and the actual reason for the prepayment could amount
to fraud. Furthermore, the shareholders of Tegeta (Oakbay, Mabengela,
Fidelity, Accurate and Elgasolve) pledged their shares to Eskom in respect
of the prepayment and thus knew of the nature of the transaction.
(d) It appears that the manner in which the rehabilitation funds are currently
being handled with the Bank of Baroda, are in contravention of section 24P
of NEMA as well as section 7 of the financial regulations which provide that
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that the financial provision must be “equal to the sum of the actual costs of
implementing the plans and report contemplated in regulation 6 and
regulation 11(1) for a period of at least 10 years forthwith”. This cannot be
guaranteed by the Bank of Baroda or Tegeta as the funds are consistently
moved around between accounts as well as other branches, Tegeta
accordingly may have contravened section 7 of the financial regulations
which is an offence under section 18 of the financial regulations which in
turn is liable to a fine not exceeding R10 million or to imprisonment not
exceeding 10 years or to both.
By not treating the rehabilitations funds in the prescribed manner and for
the prescribed purpose, Tegeta is in contravention of section 37A of the
Income Tax Act. The Commissioner may include an amount equal to twice
the market value of all property held in the rehabilitation fund, on the date
of contravention, in the rehabilitation fund's taxable income, and include the
amount that the mining company contributed to the rehabilitation fund (and
claimed a tax deduction for), in the mining company's income, to the extent
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that the property in the rehabilitation fund was directly or indirectly derived
from cash paid to the rehabilitation fund.
(f) The Commissioner may include an amount equal to twice the market value
of all property held in the rehabilitation fund, on the date of contravention,
in the rehabilitation fund's taxable income, and include the amount that the
mining company contributed to the rehabilitation fund (and claimed a tax
deduction for), in the mining company's income, to the extent that the
property in the rehabilitation fund was directly or indirectly derived from
cash paid to the rehabilitation fund. This is potentially a sum of double the
amount of R280.000.000.00 which was available in the KRTF and a sum of
double the amount R1,469.916.933.63 which was available in the ORTF.
(g) The Bank of Baroda in relation to the purchase of all shares in OCH by
Tegeta and the rehabilitation fund. This will form part of the next phase of
the investigation.
11. Whether any state functionary in any organ of state or other person
acted unlawfully, improperly or corruptly in connection with exchange of
gifts in relation to Gupta linked companies or persons;
(a) This issue will be attended to further in the next phase of the investigation.
12. Whether any person/entity was prejudiced due to the conduct of the
SOE.
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needed from the Acting Chief Executive before the agreement was signed,
as the necessary approvals appear to already have been obtained. It
appears that the conduct of Eskom, was solely for the purposes of forcing
OCM/OCH into business rescue and financial distress.
(b) It appears that the conduct of Eskom was solely to the benefit of Tegeta, in
that they forced the sale of OCH to Tegeta by stating that OCM could be
sold alone. Thereafter, it appears, they have allowed Tegeta to proceed
with the sale of a portion of OCH in the form of the Optimum Coal
Terminal. This may constitute a contravention of section 50(2) of the PFMA
in that they acted solely for the benefit of one company.
(a) The investigation has proven that the extent of issues it needs to traverse and
resources necessary to execute it is incapable of being executed fully by the
Public Protector. This was foreshadowed at the commencement of the
investigation when the Public Protector wrote to government requesting for
resources for a special investigation similar to a commission of inquiry
overseen by the Public Protector. This investigation has been hamstrung by
the late release which caused the investigation to commence later than
planned. The situation was compounded by the inadequacy of the allocated
funds (R1.5 Million).
(b) The President has the power under section 84(2)(f) of the Constitution to
appoint commissions of enquiry however, in the EFF Vs Speaker of
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Parliament the President said that: “I could not have carried out the evaluation
myself lest I be accused of being judge and jury in my own case”.
(d) The judge to be given the power to appoint his/her own staff and to investigate
all the issues using the record of this investigation and the report as a starting
point.
(f) The commission of inquiry to be given powers of evidence collection that are
no less than that of the Public Protector.
(g) The commission of inquiry to complete its task and to present the report with
findings and recommendations to the President within 180 days. The
President shall submit a copy with an indication of his/her intentions regarding
the implementation to Parliament within 14 days of releasing the report,
(h) Parliament to review, within 180 days, the Executive Members’ Ethics Act to
provide better guidance regarding integrity, including avoidance and
management of conflict of interest. This should clearly define responsibilities
of those in authority regarding a proper response to whistleblowing and
whistleblowers. Consideration should also be given to a transversal code of
conduct for all employees of the State.
(i) The President to ensure that the Executive Ethics Code is updated in line with
the review of the Executive Members’ Ethics Act.
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(j) The Public Protector, in terms of section 6 (4) (c) (i) of the Public Protector
Act, brings to the notice of the National Prosecuting Authority and the DPCI
those matters identified in this report where it appears crimes have been
committed.
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1. INTRODUCTION
1.2. The report is submitted in terms of section 8(1) of the Public Protector Act, to:
1.3. A copy of the report will also be provided to the Complainants in terms of
section 8(3) of the Public Protector Act, namely:
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1.4. A copy of the report will further be provided to the following persons in terms
of Section 8(3) of the Public Protector Act:
1.5. A copy of the report will further be provided to the following persons in terms
of Section 6(4)(c)(i) of the Public Protector Act:
1.6. This report relates to an investigation into complaints of alleged improper and
unethical conduct by the president and other state functionaries relating to
alleged improper relationships and involvement of the Gupta family in the
removal and appointment of ministers and directors of State Owned Entities
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2. THE COMPLAINT
2.1. The Public Protector received three complaints in connection with the alleged
improper and unethical conduct relating to the appointments of Cabinet Ministers.
2.2. The investigation was conducted in terms of section 182 of the Constitution read
with sections 6 and 7 of the Public Protector Act, 1994.
Key allegations
2.4. The investigation emanates from complaints lodged against the President by Father
S. Mayebe on behalf of the Dominican Order, a group of Catholic Priests, on 18
March 2016 (The First Complainant); Mr. Mmusi Maimane, the leader of the
Democratic Alliance and Leader of the Opposition in Parliament on 18 March 2016
(The Second Complainant), in terms of section 4 of the Executive Members’ Ethics
Act, 82 of 1998 (EMEA); and a member of the public on 22 April 2016 (The third
Complainant), whose name I have withheld.
2.5. The complaints followed media reports alleging that the Deputy Minister of Finance,
Hon. Mr. Mcebisi Jonas, was allegedly offered the post of Minister of Finance by the
Gupta family long before his then colleague Mr. Nhlanhla Nene was abruptly
removed by the President on December 09, 2015. The post was offered to him by
the Gupta family, which has a long standing friendship with President Zuma’s family
and a business partnership with his son Mr. Duduzane Zuma. The offer took place
at the Gupta residence in Saxonwold, City of Joburg Gauteng. The allegation was
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that Atul Gupta, the oldest of three Gupta brothers who are business partners of
President Zuma’s son, Mr. Duduzane Zuma, in a company called Oakbay, among
others, offered the position of Minister of Finance to Deputy Minister Jonas and
must have influenced the subsequent removal of Minister Nene and his
replacement with Mr. Des Van Rooyen on 09 December 2015, who was also
abruptly shifted to the Cooperative Governance and Traditional Affairs portfolio 4
days later, following a public outcry.
2.6. The media reports also alleged that Ms. Vytjie Mentor was offered the post of
Minister for Public Enterprises in exchange for cancelling the South African Airways
(SAA) route to India and that President Zuma was at the Gupta residence when the
offer was made and immediately advised about the same by Ms. Mentor. The media
reports alleged that the relationship between the President and the Gupta family
had evolved into “state capture” underpinned by the Gupta family having power to
influence the appointment of Cabinet Ministers and Directors in Boards of SOEs
and leveraging those relationships to get preferential treatment in state contracts,
access to state provided business finance and in the award of business licenses.
2.8. The First Complainant, relying on media reports, requested an investigation into:
a) The veracity of allegations that the Deputy Minister of Finance Mr Jonas and
Ms Mentor (presumably as chairpersons of the Portfolio Committee of Public
Enterprises) were offered Cabinet positions by the Gupta family;
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c) Media allegation that two Gupta aligned senior advisors were appointed to the
National Treasury, alongside Mr Van Rooyen, without proper procedure; and
d) All business dealings of the Gupta family with government departments and
SOEs to determine whether there were irregularities, undue enrichment,
corruption and undue influence in the awarding of contracts, mining
licenses, government advertising in the New Age newspaper, and any
other governmental services.
2.9. The second Complainant also relying on the same media reports, requested an
investigation into the President’s role in the alleged offer of Cabinet positions to
Deputy Minister Jonas and MP, Ms. Mentor, and that the investigation should look
into the President’s conduct in relation to the alleged corrupt offers and Gupta family
involvement in the appointment of Cabinet Ministers and Directors of SOE Boards.
2.10. In his complaint, Mr. Maimane stated amongst other things that:
“Section 2.3 of the Code of Ethics states that Members of the Executive may not:
(a) Willfully mislead the legislature to which they are accountable…(c) act in a way
that is inconsistent with their position; (d) use their position or any information
entrusted to them, to enrich themselves or improperly benefit any other person...”
(b) It is our contention that President Jacob Zuma may have breached the
Executive Ethics Code by (i) exposing himself to any situation involving the risk
of a conflict between their official responsibilities and their private interests; (ii)
acted in a way that is inconsistent with his position and (iii) use their position or
any information entrusted to them, to enrich themselves or improperly benefit any
other person”, he further stated.
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2.11. The third complaint was also based on media reports but only those alleging that
the Cabinet had decided to get involved in holding banks accountable for
withdrawing banking facilities for Gupta owned companies. The Complainant
wanted to know if it was appropriate for the Cabinet to assist a private business and
on what grounds was that happening. He asked if corruption was not involved and
specifically asked if such matters should not be dealt with by the National Consumer
Commission or the Banking Ombudsman.
2.12. While the investigation was conducted in terms of section 182 of the Constitution of
the Republic of South Africa, 1996 (the Constitution), which confers on the Public
Protector the power to investigate, report and take appropriate remedial action in
response to alleged improper or prejudicial conduct in state affairs, the alleged
improper conduct of President Zuma involving potential violation of the Executive
Ethics Code, was principally investigated under section 3(1) of the Executive Ethics
Code. The provisions of the Prevention and Combatting of Corrupt Activities Act
were invoked with regard to allegations regarding the alleged offer of a Ministerial
position by the Gupta family to Ms. Mentor in return for cancelling the India route of
the SAA, in the vicinity of President Zuma, and related allegations. The provisions of
the Protected Disclosures Act were also taken into account.
2.13. I decided to combine the complaints and have since conducted an investigation
under section 182 of the Constitution which confers on the Public Protector the
power to investigate any alleged or suspected improper or prejudicial conduct, to
report on that conduct and to take appropriate remedial action; and in terms of
section 3(1) of the EMEA which places a peremptory duty on the Public Protector to
investigate allegations of unethical conduct or violations of the Executive Ethics
Code by the President and other Members of the Executive. The Complaint is also
investigated in terms of section 7(1) of the Public Protector Act, which regulates the
Public Protector’s exercise of her/his investigative powers.
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2.14. The investigation was principally undertaken because of the Second Complainant
having lodged his complaint under the EMEA, which does not allow the Public
Protector discretionary power to consider whether or not to investigate a matter
falling under his/her jurisdiction. Section 3(1) of the EMEA states that given that the
Executive Members’ Ethics Act requires investigations under it to be concluded
within 30 days, the investigation was given priority. It was also given priority
because of the allegations having the potential of undermining public trust in the
Executive and SOEs. Additional resources were requested from government with a
view to handling it like a Commission of Inquiry and R1.5 million was allocated by
the Department of Justice and Correctional Services for the purpose.
2.15. The investigation process was informed by the provisions of sections 6 and 7 of the
Public Protector Act, 1994 (Public Protector Act). Section 6(4) empowers the Public
Protector to conduct own initiative investigations while section 6(5) (a) and (b) of the
Public Protector Act specifically empowers the Public Protector to investigate any
maladministration in connection with the affairs of any institution in which the state
is the majority or controlling shareholder or of any public entity as defined in section
1 of the Public Finance Management Act, No. 1 of 1999 (PFMA); and abuse or
unjustifiable exercise of power or unfair, capricious, discourteous or other improper
conduct. Section 7 details the processes that may be followed, which involves an
inquisitorial process that includes requests for information, subpoenas and
interviews.
2.16. The complaint relates to allegations of improper conduct in state affairs and
unethical conduct by the President of the Republic, and accordingly falls within my
ambit as the Public Protector.
2.17. Based on an analysis of the complaint, the following issues were identified as
relevant for investigation:
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and his son to be given preferential treatment in the award of state contracts,
business financing and trading licences; and
Awarding of contracts by certain State Owned Entities to entities linked to the Gupta
family
a) Whether any state functionary in any organ of state or other person acted
unlawfully, improperly or corruptly in connection with the appointment or
removal of Ministers and Boards of Directors of SOEs;
b) Whether any state functionary in any organ of state or other person acted
unlawfully, improperly or corruptly in connection with the award of state
contracts or tenders to Gupta linked companies or persons;
c) Whether any state functionary in any organ of state or other person acted
unlawfully, improperly or corruptly in connection with the extension of state
provided business financing facilities to Gupta linked companies or persons;
d) Whether any state functionary in any organ of state or other person acted
unlawfully, improperly or corruptly in connection with exchange of gifts in
relation to Gupta linked companies or persons; and
e) Whether any person/entity was prejudiced due to the conduct of the SOE.
2.18. The approach to the investigation was an inquisitorial process which asked
questions about conduct: What happened? What should have happened? Is there a
discrepancy between what happened and what should have happened and if there
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2.19. I must also indicate that the investigation has been divided into two phases and that
the first phase of the investigation did not touch on the award of licenses to the
Gupta family and superficially touched on state financing of the Gupta-Zuma
business while only selecting a few state contracts. The division of work was to
accommodate the time and resource limitations by addressing the pressing
questions threatening to erode public trust in the Executive and SOEs while
mapping the process for the second and final phase of the investigation.
2.20. The investigation process included correspondence with key parties implicated by
the allegations and potential witnesses, with the President having been the first to
be advised by myself in writing of the allegations being made and provided with
copies of the first two complaints immediately after the complaints were lodged.
President Zuma was also advised before the expiry of the mandatory 30 days for
the completion of the investigation that it was not going to be possible to conclude
the investigation within 30 days due to resources and communication challenges.
2.21. Interviews were conducted with identified key witnesses, commencing with alleged
whistle-blowers, Deputy Minister of Finance Mr Jonas and Ms Mentor, who
confirmed their status as whistle-blowers. The investigation team also interviewed
Mr Maseko, who was also identified by the media as a whistle-blower. Interviews
were also conducted with several other ministers other selected witnesses.
Documents were requested from appropriate persons and institutions and analysed
and evaluated together with the oral evidence to establish if any of the allegations
could be corroborated.
2.22. Regarding the standard that was expected of President Zuma as the President of
South Africa and the sole custodian of Executive Authority of the republic, the
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provisions of sections 96, 195 and 237 of the Constitution taken into account
together with the provisions of the Executive Ethics Code, Section 6 of the Public
Protector Act and general principles of good governance as outlined below.
2.24. Key laws and policies taken into account to help me determine if there had been
any improper and unethical conduct by the President and/or officials of the
implicated State Organs due their alleged inappropriate relationship with members
of the Gupta family were principally those governing the conduct of members of the
Executive (Executive Members Ethics Act, 1998 and Executive Ethics Code), the
Constitution, policies governing procurement by the respective State and its
Organs, the Public Finance Management Act, the Companies Act, King III Report
on Corporate Governance, Prevention and Combatting of Corrupt Activities Act,
Mineral and Petroleum Resources Development Act, 28 of 2002 and relevant
National Treasury prescripts.
3.1. The Public Protector was established under section 181(1)(b) of the Constitution to
strengthen constitutional democracy through investigating and redressing improper
conduct in state affairs.
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3.2. Section 182(1) of the Constitution provides that the Public Protector has the power
to investigate any conduct in state affairs, or in the public administration in any
sphere of government, that is alleged or suspected to be improper or to result in any
impropriety or prejudice, to report on that conduct and take appropriate remedial
action. Section 182(2) directs that the Public Protector has additional powers
prescribed in legislation.
3.3. The Public Protector is further empowered by the Public Protector Act to investigate
and redress maladministration and related improprieties in the conduct of state
affairs and to resolve the disputes through conciliation, mediation, negotiation or
any other appropriate alternative dispute resolution mechanism.
3.4. The conduct of the President of the Republic in so far as his official duties are
concerned amounts to conduct in State Affairs and as a result, the matter falls
within the ambit of the Public Protector.
3.5. Eskom SOC Limited is a State Owned Entity as listed under Schedule 2 of the
Public Finance Management Act, Act No.1 of 1999 and its conduct amounts to
conduct in state affairs and as a result, the matter falls within the ambit of the Public
Protector.
3.6. The Public Protector’s jurisdiction to investigate was not disputed by any of the
parties. However, the Public Protector’s powers of subpoena were questioned by
the Secretary General of the African National Congress (“ANC”), Mr Gwede
Mantashe and the President of the ANC Youth League (“ANCYL”), Mr Collen Maine
(“Mr Maine”).
3.7. Mr Maine and Mr Mantashe questioned the Public Protector’s powers of subpoena
to private persons and organisations / institutions.
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3.8. I responded to Messrs Mantashe and Maine by referring them to relevant sections
of the Public Protector Act. Section 7(4)(a) of the Public Protector Act stipulates that
“the Public Protector may direct any person to assist her in any investigation.
Section 7(4)(a) also provides that: “For the purposes of conducting an investigation,
the Public Protector may direct any person to submit an affidavit or affirmed
declaration or to appear before him or her to give evidence or to produce any
document in his or her possession or under his or her control which has a bearing
on the matter being investigated, and may examine such person.”
3.9. I highlighted to both Messrs Mantashe and Maine that the above sections of the Act
essentially mean that while the Public Protector’s powers and jurisdiction is to
investigate malfeasance in whatever form in state affairs, however in pursuit of this
constitutional duty the Public Protector is empowered to enlist the assistance of any
person.
3.10. Subsequent to the above, Mr Mantashe agreed to assist and Mr Maine never
responded.
President Zuma
3.11. On 22 March 2016 I wrote to President Zuma advising that I had received a request
from the Democratic Alliance to conduct an investigation into the alleged breach of
the Executive Member’s Code of Ethics by President Zuma for his alleged role in
the offering of Ministerial positions by members of the Gupta family. I quoted
relevant extracts from the complaint and the Executive Member’s Ethics Act. I
attached the complaint itself. I asked the President “if you have any comments on
the allegations levelled against you, I will appreciate a letter indicating such
comments from you.”
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3.12. In the same letter I advised President Zuma that I had received a request from the
Dominican Order to conduct a systemic investigation into undue influence in
Minister’s and Deputy Minister’s appointments, possible corruption, undue
enrichment and undue influence in the award of tenders, mining licences and
government advertisements. I attached the complaint itself. I again asked the
President “should you have a comment thereon or information that can assist, kindly
forward the same to me as soon as possible.”
3.13. On 22 April 2016 I forwarded a copy of my letter dated 22 March 2016 to President
Zuma (which had apparently not reached the President). I advised that I was
required to submit a report on the alleged breach of the Executive Member’s Code
of Ethics within 30 days of receipt of the complaint. I reported to the President that
the investigation had not been completed due to inadequate resources.
3.15. By early September 2016 my office had received additional funds in order to
proceed with the investigation.
3.16. On 13 September 2016 I sent another letter to the President asking for a meeting
with him in order to brief him on the investigation and affording him a further
opportunity to comment on the allegations, which were summarised to the effect
that the President ought to have known and/or allowed his son Duduzane Zuma to
exercise enormous undue influence in strategic ministerial appointments as well as
board appointments at SOEs.
3.17. On 1 October 2016 I sent President Zuma a Notice in terms of Section 7 (9) of the
Public Protector Act. The notice restated the complaints and added the third
complaint. I advised that my investigation was now being conducted in terms of
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section 182 of the Constitution read with sections 6 and 7 of the Public Protector
Act. I provided a full description of the issues investigated and how President Zuma
was implicated therein. I detailed the evidence implicating President Zuma before
describing his responsibility under law. I ended off the notice by advising the
President that if I do not get his version which contradicts the said evidence, there
would be a possibility that I could find that the above allegations are sustained by
the evidence. I detailed the various conclusions that I would make in that case.
3.18. In the meantime, a meeting was scheduled with the President for 6 October 2016.
3.19. On 5 October 2016 I received a letter from the Office of the Presidency referring to
a media article and asking, in preparation for the meeting, for urgent advice on the
findings I had made as well as a report on whether the veracity of the allegations by
Jonas had been fully ventilated and investigated.
3.20. On 6 October 2016 I met with the President, whose legal team raised various legal
objections and refused to discuss the merits of the investigation or the allegations
against the President. The Presidency requested that the meeting be postponed to
allow the President to study the documents provided and obtain legal advice. The
Presidency raised an objection that they had not been provided with the relevant
documents and records, and argued that they should be allowed to question
witnesses who had already testified before me. I disagreed with this request and
instead offered to provide the President with written questions to which the
President would be required to respond by affidavit.
3.21. The President’s legal advisor argued emphatically that the matter should be
deferred to the incoming Public Protector for conclusion. There was a lengthy
discussion with the President and his advisor on this matter, after which the
President expressed his willingness to answer the questions posed by the Public
Protector, at a future date, after having had an opportunity to scrutinize the
documents and consult with his legal advisor. I advised the President that as head
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of state, he is accountable to the people of the Republic, and that it is in his interest
that he do so. In an attempt to demonstrate to the President that my questions to
him were questions of fact, not requiring legal assistance, I posed said questions to
him. This discussion is captured in the transcript of this meeting, which is attached
hereto as Annexure 11. The President undertook to meet with me again on 10
October 2016 and provide me with an affidavit in response to the questions posed.
3.22. On 10 October 2016 I received a letter from the Presidency, in which he took
exception to having been given two days before the meeting of 6 October 2016 to
prepare for and give evidence on a range of matters which exceeded the ambit of
the stated request for the meeting. This was as a result of the Notice in terms of
Section 7(9) having only been received on 2 October 2016.
3.23. The letter continued to raise issues of objection. Firstly, the Presidency advised that
Section 7(9) required that he or his legal representative should be entitled to
question other witnesses, determined by me, who have appeared before me.
3.24. Secondly, the audi alteram partem rule required that, as an implicated person, the
President is entitled to the documents and records gathered in the course of the
investigation, to enable him to prepare his evidence.
3.25. Thirdly, the Presidency required a full opportunity to be heard in order to avoid
remedial actions – that would be binding on him – based on evidence not tested by
the President as an implicated person.
3.26. After providing the written questions to the Presidency, he made somewhat of an
about-turn by deciding that in fact before deposing to an affidavit, he still required a
list of witnesses, statements, affidavits and transcripts of any oral testimony and
wanted to question witnesses.
1
Transcript of a meeting held between the Public Protector South Africa and President Zuma on 6 October 2016.
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3.29. The Presidency requested an undertaking by the following day, 11 October 2016,
that I would not conclude the investigation and issue any report until he had
received the aforesaid.
3.30. On 11 October 2016 I wrote a letter to the President in response. I reassured him
that I had, to date, not concluded my investigations into this matter and had made
no adverse finding against the President.
3.31. I undertook that this office would comply with its duties under the Constitution, the
Public Protector Act, Executive Members Ethics Act and all other relevant laws in
conducting this investigation and submitting the report.
3.32. I noted that I had, since my first letter to him dated 22 March 2016, gone to great
lengths to provide him with sufficient detail regarding evidence implicating him and
the response required from him.
3.33. I had, in compliance with the Public Protector Act and the law on administrative
justice, provided him with ample opportunity to respond in connection therewith.
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3.34. The Notice in terms of section 7(9) of the Public Protector Act was merely one in a
succession of letters to him canvassing substantially similar issues regarding this
matter.
3.36. I advised that it was incumbent upon him to provide responses within a period that I
decide is both convenient and practical to me, given that firstly the Constitution
requires him to assist and protect this office. Secondly the Constitution prohibited
him from interfering with the functioning of this office. Thirdly, the Public Protector
Act vests in me the discretion to require him to provide me with an expedited
response. Finally, the spirit of the Constitution and the Public Protector Act requires
him to cooperate fully in the investigation process; conversely, recalcitrant
witnesses, particularly high-ranking members of the Executive such as him, should
be regarded as violating both the letter and spirit of the Constitution and the Public
Protector Act.
3.37. I advised that I had provided him with the evidence of the witnesses implicating him.
He was not entitled to the full record of investigations as a condition precedent to
answering the questions I had put to him.
3.38. I requested the questions he wished to pose to witnesses who had appeared before
me. I undertook to make a determination on such questions in accordance with the
Public Protector Act.
3.39. I advised that he was not entitled to refuse to answer the questions I had put to him
prior to questioning other witnesses who had appeared before me. His right to
question witnesses was not a sine qua non for his response to my questions.
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3.40. I concluded by stating that it was in the President’s interests, and that of the people
of South Africa, to account fully and honestly regarding the allegations against him.
3.41. I afforded the President a further extension to answer the questions put to him by no
later than 11 am, Thursday, 13 October 2016 to enable this office to conclude the
investigation and issue its report on the outcome thereof as soon as possible.
4. THE INVESTIGATION
4.1. Methodology
a) The investigation was conducted in terms of section 182 of the Constitution and
sections 6 and 7 of the Public Protector Act.
b) Due to the fact that the second complaint by Honourable Mmusi Maimane was laid
in terms of the Executive Members’ Ethics Act, 1998, I was compelled to conduct a
formal investigation into the matter. The Act requires that The Public Protector must
investigate any alleged breach of the code of ethics on receipt of a complaint.
Section 3(2) of the Act further provides that the Public Protector must submit a
report on the alleged breach of the code of ethics within 30 days of receipt of the
complaint.
a) Like every Public Protector investigation, the investigation was approached using an
enquiry process that seeks to find out:
What happened?
What should have happened?
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b) The question regarding what happened is resolved through a factual enquiry relying
on the evidence provided by the parties and independently sourced during the
investigation. In this particular case, the factual enquiry principally focused on the
following:
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a) Whether any state functionary in any organ of state or other person acted
unlawfully, improperly or corruptly in connection with the appointment or
removal of Ministers and Boards of Directors of SOEs;
b) Whether any state functionary in any organ of state or other person acted
unlawfully, improperly or corruptly in connection with the award of state
contracts or tenders to Gupta linked companies or persons;
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c) Whether any state functionary in any organ of state or other person acted
unlawfully, improperly or corruptly in connection with the extension of state
provided business financing facilities to Gupta linked companies or persons;
d) Whether any state functionary in any organ of state or other person acted
unlawfully, improperly or corruptly in connection with exchange of gifts in
relation to Gupta linked companies or persons; and
e) Whether any person/entity was prejudiced due to the conduct of the SOE.
d) The enquiry regarding what should have happened, focuses on the law or rules that
regulate the standard that should have been met by the President and the
implicated State Owned Entities to prevent maladministration and prejudice.
e) The enquiry regarding the remedy or remedial action seeks to explore options for
redressing the consequences of maladministration.
4.3. At the onset of this investigation, I took the decision to review media articles which
made allegations of undue influence being given to the Gupta family as well as
Mr D. Zuma with regards to contracts awarded by SOEs.
4.4. I found the following SOEs were implicated in allegations of impropriety by the
media:
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4.5. Eskom is South Africa’s main power utility. It uses a mix of nuclear, diesel,
hydroelectric, pump storage, solar and coal to meet South Africa’s energy supply
demand.
4.6. South Africa produces an average of 224 million tons of marketable coal annually,
making it the fifth largest coal producing country in the world. Twenty-five percent
(25%) of our production is exported internationally, making South Africa the third
largest coal exporting country in the world. The remainder of South Africa's coal
production feeds the various local industries, with fifty-three percent (53%) used for
electricity generation. Coal has traditionally dominated the energy supply sector in
South Africa. This domination is unlikely to change in the next decade, due to the
relative lack of suitable alternatives to coal as an energy source.
4.7. The key role played by our coal reserves in the economy is illustrated by the fact
that Eskom is the seventh (7th) largest electricity generator in the world. Eskom had
thirteen (13) coal-fired power stations and maintained thirty-three (33) coal contracts
serviced by at least twenty-eight (28) suppliers in December 2015.
4.8. I discuss below, the key allegations raised against Eskom in the media.
4.9. I noted an article in the City Press newspaper dated 12 June 2016 with the title
“How Eskom bailed out the Guptas”. The key points of the media article are:
“Eskom has quietly awarded a contract worth more than R564 million to a coal
mining company owned by the Gupta family and President Jacob Zuma’s son
Duduzane;
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In March, the business rescue practitioners of Optimum Coal – which was sold to
Tegeta in April for R2.15 billion – reported that the mine was projected to lose R100
million a month;
At the heart of the company’s spectacular turnaround is the R564 million contract
Eskom quietly awarded to Tegeta in April to supply Arnot power station with 1.2
million tons of coal over six months. With transport costs added, Eskom is paying just
under R700 million – excellent, by Eskom standards;
Until recently, Optimum Coal, situated just south of Middelburg, Mpumalanga, was
owned by mining giant Glencore. It was announced in December that Tegeta would
buy it. It was later alleged that mining minister Mosebenzi Zwane travelled to
Switzerland with the Guptas to help them seal the deal;
Tegeta’s major shareholders include the Gupta family’s Oakbay Investments (29%);
Duduzane Zuma’s Mabengela Investments (28.5%); Gupta associate Salim Essa’s
company, Elgasolve (21.5%); and two unknown investors in Dubai;
When Tegeta took over Optimum in January, it was losing more than R3 million a
day because of a lossmaking contract to supply coal for the Hendrina power station.
At the time, there was widespread speculation that Tegeta would use its political
influence to secure more lucrative terms from Eskom;
Eskom, though, has repeatedly denied this, insisting there would be no special
treatment for the Gupta company. “There’s an impression that we are doing special
favours for them. This is not true,” Eskom spokesperson Khulu Phasiwe said on
Thursday;
At R470 a ton, Tegeta’s Arnot contract is one of Eskom’s most expensive.In May last
year, Public Enterprises Minister Lynne Brown told Parliament that Eskom paid an
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average price of R230.90 a ton for coal, and that the average price of Eskom’s five
most expensive contracts was a “delivered price” of R428.84 a ton;
However, the price paid to Tegeta excludes transport costs. Eskom refused to reveal
the transport costs, saying these are “commercially sensitive”. However, City Press
has established that, with transport, Tegeta is paid roughly R580 a ton, pushing the
total value of the six-month contract up to just under R700 million;
Tegeta only received this lucrative contract thanks to a nine-month delay in Eskom
awarding a permanent supply contract to replace a 40-year-old Exxaro contract that
expired at the end of 2015;
Eskom was supposed to award the contract in November, but this was initially
delayed until March, and then delayed again until September this year;
When Tegeta started supplying Arnot in January, they were one of seven short-term
suppliers;
In a rare public statement, the Guptas’ Oakbay Investments insisted they had only a
small piece of the pie: “We had a one-month contract in January, supplying less than
15%”;
But by the end of March, the contract for Arnot had still not been awarded;
“Initially, the contract was supposed to be fulfilled in March, but we couldn’t do that
because out of the five [short-listed bidders] none of them was able to give us the full
5 million tons a year,” said Phasiwe;
But the original request for the proposal document issued in August last year does
not require a single supplier for the full 5 million tons; and
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Eskom says it approached the four remaining ad hoc suppliers at Arnot and offered
them the opportunity to increase their supply;
“We had to get extra tonnages from the four that are remaining. If we did not get any
extra tonnages, we would have had a shortfall of 2.1 million tons,” Phasiwe said;
Two companies were then given additional contracts: Umsimbithi for 540 000 tons,
and Tegeta for 1.2 million tons;
Phasiwe said the delays in awarding the Arnot contract did not only benefit the
Guptas;
“If we have other companies benefiting, then I don’t think it’s fair to single them out.”;
Umsimbithi spokesperson Shamiela Letsoalo would not confirm the price they were
paid, but it is less than the amount paid to the Guptas;
“The terms of the contract are confidential. We can, however, confirm that the
delivered contractual price is below the R450 a ton, as reported by Eskom
previously,” she said;
Under the existing Eskom contract that Tegeta inherited from Glencore, Tegeta must
deliver 458 000 tons of coal a month to the Hendrina power station;
But City Press has established that Optimum does not produce enough coal to
honour both contracts;
In what one mining industry financier describes as a “sleight of hand”, it appears that
Eskom is allowing Tegeta to divert a significant portion of Optimum’s coal from
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Hendrina power station, where Eskom pays them R174 a ton, to Arnot power station
50km away, where Eskom buys the same coal at R580 a ton;
Eskom confirmed that for the past three months, Tegeta delivered, on average, 315
000 tons of coal a month to Hendrina;
Four different coal industry analysts and miners City Press spoke to questioned why
Eskom did not take possession of the full 458 000 tons of coal at R174 a ton, but
allowed Tegeta to use them to increase its supply to Arnot;”
4.10. In light of the above mentioned media report, I took the decision to investigate the
following at Eskom:
4.11. In addition to the above, I also investigated the sale of all shares held by Optimum
Coal Holdings (“OCH”) and mining rights to Tegeta.
4.12. Transnet was formed in 1990 and is a large state company providing freight rail,
engineering, port infrastructure and marine services. The South African Government
through the Department of Public Enterprise is the majority shareholder in Transnet.
4.13. Transet is an essential SOE and provides essential services across numerous
industries. According to Transnet’s integrated Financial Report of 2014, their
revenue was report as being R56,6 billion. Transnet has approximately 49,000
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employees. Transnet is thus vital in assisting the South African economy and when
efficiently and effectively run, jobs can be created and sustained and the economy
as a whole can be grown.
4.14. I evaluated the various articles in the media in relation to Transnet and noted an
article in the Sunday Times newspaper styled “Transnet deals fall into Gupta
man's lap” dated 22 May 2016. The article made the following allegations:
c) This follows a decision by the board of Transnet last week to approve the
cession of major advisory contracts from Regiments Capital to Trillian Capital
Partners, a company registered last year in which Essa holds a 60% stake;
d) Trillian director Eric Wood and Transnet say the company was initially a
subcontractor to Regiments, but Regiments executive chairman Litha
Nyhonyha denies this;
e) The transfer of the contracts effectively means Essa inherits them without
lifting a finger;
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h) This was disputed by Nyhonhya, who said: "Ordinarily, this flattery would be
welcomed - reports of our success being greatly exaggerated. In fact, we
would have been delighted if the total income earned by Regiments from all
its clients in any year was anywhere in the region of R800-million";
i) Within days of the registration of Trillian in April last year, Essa was
introduced to Transnet as a subcontractor to Regiments;
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k) Transnet sources said the decision to allow cession of the contracts was
taken during a special board meeting on Wednesday last week;
m) Wood, who has a 25% stake in Trillian, headed up Regiments' contract with
Transnet;
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o) But Wood denied this version and internal Transnet documents seen by the
Sunday Times indicate that Regiments knew it was ceding the contracts to
Trillian;
p) "Before the end of February they already knew that I was moving to Trillian,"
Wood told the Sunday Times this week;
q) "It's always been clear, and they always knew and understood, that I was
moving to Trillian. I certainly don't understand why they would deny facts," he
said;
t) Essa has been the subject of numerous reports over his links and
partnerships with the Gupta family, who have been accused of using their
proximity to President Jacob Zuma to score government deals;
u) Essa also has links to the Transnet board through having once been a
business partner of board chairwoman Linda Mabaso's son Malcolm - an
adviser to Mineral Resources Minister Mosebenzi Zwane;
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aa) Transnet's internal policies provide for confinement but under strict
circumstances, which internal sources insist are absent;
bb) Transnet, over two weeks, refused to divulge details of the contracts or make
available documents related to them. Thus it is not clear what work the
companies did for Transnet, how much they may have been paid, or the
duration of the contracts;
cc) These companies have already been paid hundreds of millions by Transnet;
dd) "These entities do a lot of activities within the organisation. They enjoy
superior status due to their proximity," a Transnet source said. "In other
instances, they provide services that the organisation is fully equipped in.
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4.15. In light of the above mentioned article, I decided to investigate contracts awarded by
Transnet to Regiments Capital and Trillian. The investigation into Transnet will
however form part of the next phase of the investigation.
4.16. Denel was established in 1991 and is a state-owned entity which specialises in
arms and aerospace manufacturing. In 1992 the decision was taken to incorporate
Denel under the portfolio of the Department of Public Enterprise.
4.18. Denel has over the years entered into numerous co-operation agreements, joint
ventures and equity partnerships which enable Denel to be a leading manufacturer
within the aeronautical and arms manufacturing industry as well as a key supplier to
the South African National Defence Force.
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4.19. Denel has 12 main divisions under which it conducts its various business activities.
According to Denel’s integrated company report 2015/2016, they rank among the
world’s top 100 global defence manufacturers. This makes Denel one of the key
State Owned Entities, which need to be managed effectively and efficiently in order
to promote growth within the South African economy.
4.20. With regards to allegations raised against Denel, I noted an article in the Mail and
Guardian styled “Guptas conquer state arms firm Denel” dated 5 February 2016.
The article raised the following allegations against Denel:
a) “The Guptas have done it again – this time by teaming up with state-owned
arms manufacturer Denel to profit from the sale of its products in the East’
b) Denel announced the formation of joint venture company Denel Asia last
week but did not identify the controversial family as shareholders by name;
d) Following the ANC executive’s annual lekgotla last week, party secretary
general Gwede Mantashe reportedly said that a “warning came out very
strongly” against the “capture” of state-owned enterprises by “people outside
the state”;
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f) Eskom has denied it influenced the sale, saying a R2.5-billion fine it imposed
on Optimum for poor quality coal was provided for in their contract. Zwane’s
spoksperson has said the minister’s visit to Switzerland was according to his
policy of engaging with stakeholders and to avoid job losses;
g) There are similar claims, though, of unfair play paving the way to the Denel
deal – in this instance over the bodies of officials who might have opposed it;
h) The joint venture was concluded in the absence of Denel’s permanent chief
executive, chief financial officer and company secretary, all three of whom
are on suspension;
i) Several sources sympathetic to the three have indicated that there is a strong
suspicion they were removed to clear the way for the deal. Denel says they
were suspended for their roles in an unrelated matter;
j) Announcing the joint venture, Denel said in a press release last week
Thursday that Denel Asia, headquartered in Hong Kong, would help Denel
“find new markets for our world-class products, especially in the fields of
artillery, armoured vehicles, missiles and unmanned aerial vehicles”;
k) Denel Asia would “focus its marketing attention on countries such as India,
Singapore, Cambodia, Indonesia, Pakistan, Vietnam and the Philippines who
have all announced their intentions to embark on major new defence
acquisitions”;
l) Denel’s joint venture partner in the company was identified as “VR Laser, a
company with 20 years extensive experience [in] defence and technology in
South Africa”. Denel also said that VR Laser had “a good understanding” of
the target “markets and opportunities”;
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m) Denel did not answer amaBhungane questions this week about Denel Asia’s
ownership breakdown. But Hong Kong corporate records show that it was
founded on January 29 with Denel holding 51% and VR Laser Asia 49%;
n) VR Laser Asia was registered in Hong Kong after the Gupta family and
associates acquired VR Laser Services, a Boksburg engineering firm, two
years ago – another deal that attracted controversy (see “VR Laser and the
Guptas” below);
i. What value would VR Laser bring to the joint venture given its
apparently limited experience in defence marketing and limited
exposure to the Denel product range, which extends well beyond
armoured vehicles?; and
ii. Would Denel Asia have the exclusive right to market Denel products in
the target countries or would Denel and its other subsidiaries also
have the right to market there?
q) Momentum for the joint venture appears to have built after Public Enterprises
Minister Lynne Brown appointed a new Denel board in late July. She retained
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only one member of the outgoing board, Johannes “Sparks” Motseki, “for
purposes of continuity”;
s) These shares, if Motseki still has them, would now be worth about R80-
million based on the claimed net asset value of Oakbay Resources and
Energy, Shiva’s listed parent;
t) Denel did not answer directly whether Motseki had recused himself from
making decisions about the joint venture, but said: “Mr J Motseki has
fiduciary duty to act in the best interest of Denel and has never influenced
Denel to do business with any persons that he knows in whatever capacity.”;
u) Among the new board’s first acts, in September, was to suspend Denel chief
executive Riaz Saloojee, chief financial officer Fikile Mhlontlo and company
secretary Elizabeth Africa. No formal reasons were given at the time;
v) Denel this week said Saloojee and Mhlontlo were “suspended in respect [of]
their roles in the acquisition of LSSA [Land Systems South Africa] by Denel,
where Denel paid R855-million, of which Denel business was negatively
affected. The disciplinary process is under way.”;
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x) There are questions, however, about the strength of the charges against the
officials. One legal and one other source acquainted with the matter this
week said disciplinary hearings have not commenced but that an informal
mediation process was about to start;
y) The three officials said they were precluded from commenting. Their
attorney, Zarina Walele, also declined comment;
aa) VR Laser Services first came to wider public attention in July 2014 in an
amaBhungane story headlined: “ Transnet tender boss’s R50-billion double
game”;
bb) The story outlined how a friend of the Guptas, Iqbal Sharma, had obtained an
interest in the company while it was in pole position to benefit from
subcontracts in Transnet’s R50-billion tender for locomotives. At the same
time, he was chairing the Transnet committee that oversaw the tender
process;
cc) Sharma denied any conflict of interest and took amaBhungane to the press
ombudsman, but his complaint was dismissed;
dd) At the time, a key part of the story was that the Guptas’ interest in VR Laser
was not initially disclosed. Westdawn Investments, a Gupta contract mining
company, better known as JIC Mining Services, took a 25% stake in VR
Laser Services, and Salim Essa, another Gupta business associate, took
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75%. Duduzane Zuma, the president’s son, also acquired a stake through
Westdawn. Sharma’s stake was by ownership of VR Laser’s premises;
ee) Since then, the Gupta family’s control of VR Laser has become clearer.
Corporate records show that VR Laser is registered to the same Grayston,
Sandton, office park where other Gupta businesses are based. VR Laser’s
only three directors are Essa, Pushpaveni Govender, who is also a director of
other Gupta companies, and Kamal Singhala, a 25-year-old nephew of the
Guptas who gives his address as the family’s Saxonwold compound;
ff) Denel launched its Gupta joint venture, Denel Asia, without approval from the
finance and public enterprises ministers as required;
hh) Pressed whether the minister, who represents the government as Denel’s
only shareholder, was concerned about the launch of the deal, Cruywagen
would only say: “Interactions between the minister and the board are
confidential. For questions about operational matters of Denel, I refer you to
Denel and the board”; and
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Denel did not respond to urgent questions on Thursday whether it and its
board exceeded their authority”.
4.21. I have decided to investigate contracts concluded between Denel and VR Laser
Services as referenced in the above media article. The investigation into Denel will
however form part of the next phase of the investigation.
4.22. SAA is South Africa’s largest airline and the national flag carrier. SAA operates and
owns the lost cost airline Mango.
4.23. SAA has been the subject of extensive scrutiny, particularly relating to the
numerous losses which the airlines has suffered over recent years.
a) Fin24 reported that SAA had spent R9.4m on purchasing about six million
copies of the New Age newspaper, which is owned by the Gupta family;
c) The newspaper was in circulation for just three months before SAA started
buying the New Age and its circulation figures are not audited by the Audit
Bureau of Circulations;
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agreement between SAA and the New Age, whether such spending is
financially viable given the current state of SAA, and why the New Age was
chosen ahead of any other national newspaper; and
e) This comes as SAA’s annual general meeting was postponed from the first
week of October, because it had not yet finalised their 2014/15 annual
financial statements, according to the Treasury, which now oversees the
state-owned entity.
4.25. I have decided to investigate the contract awarded by SAA to the New Age
newspaper for circulation to its customers. The investigation into SAA will however
form part of the next phase of the investigation.
4.26. SABC was formed in 1936 and is the South African National Broadcaster and
provides services in the form of 19 radio stations and 4 televisions broadcasts.
4.27. The SABC provides a wide range of services and essentially connects the normal
South African individual to the rest of South Africa.
4.28. During the course of this investigation, I interviewed Honorable Julius Sello Malema
(Mr Malema”) to solicit any evidence in support of statements attributed to him in the
media relating to the influence of members of the Gupta family. During the said
interview, Mr Malema made the following allegations relating to SABC:
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b) SABC has since entered into a partnership agreement with the New Age
newspaper and government departments, including Ministers are required to
pay either SABC, New Age newspaper and/or the relevant partnership to
appear on SABC for purposes of communication with the nation.
4.29. The above allegations were confirmed by Minister Mbalula during an interview with
him on this investigation.
4.30. Following the above allegations, I have decided to investigate any contract(s)
awarded to the New Age newspaper and/or TNA Media by the SABC. The
investigation into SABC will however form part of the next phase of the
investigation.
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e) President Zuma has and in violation of the Executive Ethics Code exposed
himself to any situation involving the risk of conflict between his official duties
and his private interest or use his position or information entrusted to him to
enrich himself and businesses owned by the Gupta family and his son to be
given preferential treatment in the award of state contracts, business
financing and trading licences.
a) Whether any state functionary in any organ of state or other person acted
unlawfully, improperly or corruptly in connection with the appointment or
removal of Ministers and Boards of Directors of SOEs;
b) Whether any state functionary in any organ of state or other person acted
unlawfully, improperly or corruptly in connection with the award of state
contracts or tenders to Gupta linked companies or persons;
c) Whether any state functionary in any organ of state or other person acted
unlawfully, improperly or corruptly in connection with the extension of state
provided business financing facilities to Gupta linked companies or persons;
d) Whether any state functionary in any organ of state or other person acted
unlawfully, improperly or corruptly in connection with exchange of gifts in
relation to Gupta linked companies or persons; and
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e) Whether any person/entity was prejudiced due to the conduct of the SOE.
4.31. Interviews relating to the issue, “whether President Zuma improperly and in
violation of the Executive Ethics Code, allowed members of the Gupta family
and his son, to engage or be involved in the process of removal and
appointing of various members of Cabinet”
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i) Former security guard at the Gupta family residence, Mr John Maseko (“Mr
Maseko”) on 22 September 2016;
a) Subpoena in terms of section 7(4) and (5) of the Public Protector Act, 1994
to Ms Mentor dated 15 July 2016;
b) Subpoena in terms of section 7(4) and (5) of the Public Protector Act, 1994
to Mr Collen Maine dated 27 September 2016;
c) Subpoena in terms of section 7(4) and (5) of the Public Protector Act, 1994
to Minister Mbalula dated 27 September 2016;
d) Subpoena in terms of section 7(4) and (5) of the Public Protector Act, 1994
to Mr Mjikijeli Kheswa, a G4S Security Guard at the Gupta family residence
dated 27 September 2016;
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e) A subpoena in terms of section 7(4) and (5) of the Public Protector Act,
1994 to Vodacom;
f) A subpoena in terms of section 7(4) and (5) of the Public Protector Act,
1994 to Vodacom;
g) Subpoena in terms of section 7(4) and (5) of the Public Protector Act, 1994
to Vodacom dated 1 September 2016;
h) A subpoena in terms of section 7(4) and (5) of the Public Protector Act,
1994 to MTN;
i) Subpoena in terms of section 7(4) and (5) of the Public Protector Act, 1994
to MTN dated 6 September 2016;
j) Subpoena in terms of section 7(4) and (5) of the Public Protector Act, 1994
to Vodacom dated 5 October 2016;
k) A subpoena in terms of section 7(4) and (5) of the Public Protector Act,
1994 to Cell C; and
l) Subpoena in terms of section 6 and 7(4) of the Public Protector Act, 1994 to
Dr Cassius Lubisi, the Presidency dated 5 September 2016.
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n) Agreement between Eskom Holdings SOC Limited and Optimum Coal Mine
Proprietary Limited and Optimum Coal Holdings Proprietary Limited
regarding a process to engage on issues between the parties and for the
review and future extension of the Coal Supply Agreement for the Hendrina
Power Station signed 23 May 2014;
u) Hendrina Coal Supply Agreement: Revised Offer letter dated 30 June 2015;
w) Demand for repayment in respect of coal which failed to comply with the
Quality Specification of the CSA during the period 1 March 2012 to 31 May
2015 dated 16 July 2015;
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aa) Eskom Holdings SOC Limited / Optimum Coal Mine Proprietary Limited &
Optimum Coal Holdings Proprietary Limited letter dated 6 August 2015;
bb) Optimum Coal Holdings Ltd (In Business Rescue) and Optimum Coal Mine
(Pty) Ltd (In Business Rescue) letter dated 7 August 2015;
cc) Optimum Coal Mine Proprietary Limited (In Business Rescue) / Eskom
Holdings SOC Limited Re: Coal Supply Agreement, suspension of
Agreement and offer to supply letter dated 20 August 2015
dd) Eskom Holdings Limited / Optimum Coal Mine Proprietary Limited and
Optimum Coal Holdings Proprietary Limited letter dated 21 August 2015;
ee) Optimum Coal Mine (Pty) Limited (In Business Rescue) letter dated 21
August 2015;
ff) Eskom Holdings SOC Limited // Optimum Coal Proprietary Limited (In
Business Rescue) & Optimum Coal Holdings Proprietary Limited (In
Business Rescue) letter dated 24 August 2015;
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gg) Optimum Coal Mine Proprietary Limited (In Business Rescue) / Eskom
Holdings SOC Limited Re, Coal Supply Agreement letter dated 26 August
2016;
hh) Optimum Coal Mine (Pty) Ltd (In Business Rescue), Settlement Proposal
letter dated 17 September 2015;
ii) Without Prejudice: Eskom Holdings SOC Limited/ Optimum Coal Mine
Proprietary Limited and Optimum Coal Holdings Limited, indulgence on
Qualities letter dated 19 September 2015;
jj) Without Prejudice: Eskom Holdings SOC Limited/ Optimum Coal Mine
Proprietary Limited and Optimum Coal Holdings Limited, indulgence on
Qualities letter dated 22 September 2015;
kk) Optimum Coal Mine Proprietary Limited (In Business Rescue), settlement
Proposal letter dated 30 September 2015;
ll) Optimum Coal Mine Proprietary Limited (In Business Rescue), settlement
Process letter dated 5 October 2015;
mm) Optimum Coal Mine (Pty) Ltd, Non-Binding Offer letter dated 7 October
2015;
nn) Optimum Coal Mine (Pty) Ltd, Non-Binding Offer letter dated 23 October
2015;
oo) Optimum Coal Mine (Pty) Ltd (In Business Rescue), options letter dated 29
October 2015;
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pp) Optimum Coal Mine (Pty) Ltd (In Business Rescue), options letter dated 3
November 2015;
qq) Optimum Coal Mine (Pty) Ltd (In Business Rescue), options letter dated 5
November 2015;
rr) Optimum Coal Mine (Pty) Ltd (In Business Rescue), options letter dated 13
November 2015;
tt) Coal Supply Agreement entered into between Eskom SOC Limited
(“Eskom”) and Tegeta Exploration and Resources (Pty) Ltd (“Tegeta”) for
the supply of coal at Majuba Power Station; and
uu) Coal Supply Agreement entered into between Eskom SOC Limited
(“Eskom”) and Tegeta Exploration and Resources (Pty) Ltd (“Tegeta”) for
the supply of coal at Arnot Power Station.
a) Former Business Rescue Practitioners for Optimum Coal Mine (“OCM”) and
Optimum Coal Holdings (“OCH”), Messrs Piers Marsden and Peter van den
Steen on 9 September 2016;
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e) Loan Consortium.
a) Subpoena in terms of section 6 and 7(4) of the Public Protector Act, 1994 to
Standard Bank dated 22 September 2016;
b) Subpoena in terms of section 6 and 7(4) of the Public Protector Act, 1994 to
Exxaro Coal dated 22 September 2016;
c) A subpoena in terms of section 7(4) and (5) of the Public Protector Act,
1994 to Mr Nazeem Howa of Tageta;
d) A subpoena in terms of section 7(4) and (5) of the Public Protector Act,
1994 to Mr Mark Pamensky of the Eskom Board of Directors;
e) A subpoena in terms of section 7(4) and (5) of the Public Protector Act,
1994 to Mr Molefe of Eskom;
f) A subpoena in terms of section 7(4) and (5) of the Public Protector Act,
1994 to Mr Singh of Eskom;
g) Subpoena in terms of section 6 and 7(4) of the Public Protector Act, 1994 to
Telkom dated 22 September 2016;
h) A subpoena in terms of section 7(4) and (5) of the Public Protector Act,
1994 to Standard Bank;
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i) Subpoena in terms of section 7(4) and (5) of the Public Protector Act, 1994
to Emirates Airlines dated 15 September 2016;
j) Subpoena in terms of section 7(4) and (5) of the Public Protector Act, 1994
to Glencore dated 15 September 2016;
m) Subpoena in terms of section 6 and 7(4) of the Public Protector Act, 1994 to
First Rand Bank dated 5 September 2016;
n) Subpoena in terms of section 7(4) and (5) of the Public Protector Act, 1994
to Messrs Peter van den Steen and Piers Marsden, Business Rescue
Practitioners dated 13 September 2016; and
k) Subpoena in terms of section 7(4) and (5) of the Public Protector Act, 1994
to Nedbank dated 5 September 2016.
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n) Notice in terms of section 7(9) of the Public Protector Act, 1994 to President
Zuma dated 2 October 2016;
o) Notice in terms of section 7(9) of the Public Protector Act, 1994 to Dr Ben
Ngubane, Chairperson the Board of Directors at Eskom dated 4 October
2016;
q) Notice in terms of section 7(9) of the Public Protector Act, 1994 to Mr Ajay
Gupta dated 4 October 2016;
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dd) Letter to Messrs Peter van den Steen and Piers Marsden, Business Rescue
Practitioners dated 5 September 2016;
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a) Subpoena in terms of Section 6 and 7(4) of the Public Protector Act, 1994
to Standard Bank Limited dated
b) Subpoena in terms of Section 6 and 7(4) of the Public Protector Act, 1994
to First National Bank, a division of FirstRand Group Limited dated
c) Subpoena in terms of Section 6 and 7(4) of the Public Protector Act, 1994
to a Consortium of banks which advanced a loan to Optimum Coal Holdings
(Pty) Ltd dated;
d) Subpoena in terms of Section 6 and 7(4) of the Public Protector Act, 1994
to Glencore South Africa (Pty) Ltd dated;
e) Subpoena in terms of Section 6 and 7(4) of the Public Protector Act, 1994
to Exxaro Coal: Mpumalanga and Mafubi (Pty) Ltd dated
f) Subpoena in terms of Section 6 and 7(4) of the Public Protector Act, 1994
to the former Business Rescue Practitioners for Optimum Coal Holdings
(Pty) Ltd and Optimum Coal Mine (Pty) Ltd, Messrs Piers Michael Marsden
and Petrus Francois van den Steen dated
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1. http://www.news24.com/SouthAfrica/News/full-text-mcebisi-jonas-
statement-20160316
2. http://www.iol.co.za/news/politics/i-love-the-anc-but-i-love-sa-more---vytjie-
mentor-1999262
3. http://mg.co.za/article/2016-02-05-00-guptas-conquer-state-arms-firm-denel
4. http://www.fin24.com/Economy/SAA-spends-nearly-R10m-with-New-Age-
20151012
5. http://www.timeslive.co.za/sundaytimes/stnews/2016/05/22/Transnet-deals-
fall-into-Gupta-mans-lap
6. http://mg.co.za/article/2016-03-29-gupta-director-joined-eskom-board-
within-three-months
7. https://www.da.org.za/2016/06/public-protectors-gupta-investigation-must-
include-eskom-coal-deals/
8. http://www.cipc.co.za
9. www.eskom.co.za
10. https://archive.org/web/
11. www.wikipedia.org
12. www.news24.com
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13. http://www.miningmx.com
14. http://mg.co.za/
15. http://amabhungane.co.za/
16. https://www.saica.co.za/integritax/2012/2025._Mining_rehabilitation_funds_.
htm
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Introduction
5.1. The Gupta family, originating from India, arrived in South Africa in 1993. They
established businesses in South Africa with their notable business being a computer
assembly and distribution company called Sahara Computers. The family is led by
three brothers Ajay Gupta who is the eldest, Atul Gupta and Rajesh Gupta who is
the youngest. Rajesh is commonly known as “Tony”. According to a letter submitted
to my office, total revenues from their business activities for the 2016 financial year
amounted to R2,6 billion, with government contracts contributing a total of R235
million of the revenues.
5.2. They later diversified their business interests into mining through the acquisition of
JIC Mining Services, Shiva Uranium and Tegeta Exploration and Resources,
Optimum Coal Mine and Koornfontein Coal Mine. They also started a media
company called TNA Media, which publishes a newspaper called The New Age and
owns a television channel called ANN7.
5.3. The Gupta family are known friends of the President Zuma. President Zuma has
openly acknowledged his friendship with them, most notably during a discussion in
the National Assembly on 19 June 2013 where he admitted that members of the
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Gupta family were his friends. Mr Ajay Gupta (“Mr A. Gupta), also admitted to being
friends with President Zuma when I interviewed him on 4 October 2016.
5.4. President Zuma’s son, Mr Duduzane Zuma (“Mr D. Zuma”) is a business partner of
the Gupta family through an entity called Mabengela Investments (“Mabengela”).
Mabengela has a 28.5% interest in Tegeta Exploration and Resources (“Tegeta”).
Mr D. Zuma is a Director of Mabengela.
5.5. Members of the Gupta family and the President Zuma’ son, Mr D. Zuma, have
secured major contracts with Eskom, a major State owned company, through
Tegeta. Tegeta has secured a 10 year coal supply agreement (“CSA”) with Eskom
SOC Limited (“Eskom”) to supply coal to the Majuba Power station. The entity has
also secured contracts with Eskom to supply coal to the Hendrina and Arnot power
stations.
5.6. Eskom CEO, Mr Brian Molefe (“Mr Molefe”) is friends with members of the Gupta
family. Mr A. Gupta admitted during my interview with him on 4 October 2016 that
Mr Molefe is his “very good friend” and often visits his home in Saxonwold.
5.7. The New Age newspaper has also secured contracts with some provincial
government departments and state owned entities, most notably Eskom and South
African Airways (“SAA”).
5.8. The Gupta family recently purchased shares in an entity called VR Laser Services
(“VR Laser”). VR Laser has major contracts with Denel SOC Limited (“Denel”), a
State owned armaments manufacturing company. VR Laser has also partnered with
Denel to apparently seek business opportunities abroad.
5.9. During March this year, Mr Jonas issued a media statement alleging that he was
offered the position of Minister of Finance by members of the Gupta family in
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exchange for executive decisions favourable to the business interests of the Gupta
family, an offer which he declined. The Gupta family has denied the allegations
made by Mr Jonas.
5.10. At the time Mr Jonas is alleged to have been offered a Cabinet post as Minister of
Finance, Mr Nene was occupying the post. Mr Nene was removed from his post on
9 December 2015 by President Zuma and replaced with Minister Van Rooyen.
Minister Van Rooyen was replaced by Minister Gordhan on 14 December 2015 as
Minister of Finance, 4 days after his appointment.
5.11. Following Mr Jonas’ statement, Ms Mentor also issued a statement to the press
alleging that she was also offered a Cabinet post by members of the Gupta family in
exchange for executive decisions favourable to their business interests, an
allegation denied by the Gupta family.
5.12. The former CEO of Government Communication and Information System (“GCIS”),
Mr Themba Maseko also issued a statement alleging that members of the Gupta
family pressured him into placing government advertisements in the New Age
newspaper. Mr Maseko further alleged that President Zuma asked him to “help” the
Gupta family.
Complainant’s Case
5.13. There are two pertinent complaints relating to the alleged breach of the Executive
Members Ethics Act of 1998 by President Zuma. The complaints are as follows:
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b) The second complaint was lodged on 18 March 2016 by the leader of the
Democratic Alliance, Mr Mmusi Maimane against the President in terms of
the Executive Members’ Ethics Act, 1998. Mr Maimane also referred to the
media reports regarding the offer of Cabinet positions to Ms Mentor and Mr
Jonas.
5.14. Following the above complaints, I interviewed Ms Mentor and Mr Jonas to establish
facts regarding the allegations raised in the media. I address in the next
paragraphs, the statements made by both Ms Mentor and Mr Jonas.
5.15. The interview with Ms Mentor was held on 22 July 2016 in Cape Town. She
informed of the following:
b) Ms Mentor stated that a week before Cabinet reshuffle in October 2010, she
travelled from Cape Town to Johannesburg on a South African Airways
(“SAA”) flight believing she was going to meet with President Zuma. The
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meeting was arranged by a staffer from the Presidency. Upon her arrival at
OR Tambo International Airport (“ORTIA”), she was welcomed by two
unknown men at the arrivals lounge who held her name tag. The men drove
her to the offices of Sahara Computers first. They later drove her to the
residence of the Gupta family in Saxonwold, where the job offer was made;
c) She stated that she was told she could become a Minister within a week or
so, if she assisted with influencing the South African Airways cancellation of
the India route, she would become Minister of Public Enterprises. She
declined the offer;
d) Ms Mentor stated that Zuma emerged minutes later from another entrance;
e) She stated “The president was not angry that she declined the offer. He
apparently said to her in Zulu, something like ‘it’s okay Ntombazane (girl)...
take care of yourself”;
f) Mentor recounted how Zuma acted as usual like a father and a leader and
immediately accepted that she disagreed with the proposal, and escorted
her to the window-tinted vehicle outside; and
g) Mentor said she was not aware of any cabinet reshuffling plans at the time
until she heard about the actual reshuffling a few days after the offer of a
Cabinet post was made to her by members of the Gupta family.
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c) During her tenure, she had the responsibility to appoint Board members in
the State Owned Entities (SOEs) which fell under DPE;
e) President Zuma and the Secretary General of the ANC, Mr Mantashe took
interest in the appointment of Board members. President Zuma took interest
in the appointment of Board members at Eskom and Transnet whereas
Mr Mantashe was interested in the appointment of Board members at
Transnet;
f) President Zuma made it very difficult for her to perform her job, at a certain
point he would not even allow her to appoint a Director General in her
Department;
g) When she became Minister, most SOEs were in financial distress with the
exception of a few, including Transnet and SAA;
h) The SAA Board was chaired by Ms Cheryl Carolous (Ms Carolous) at the
time;
i) During a State visit to India in June 2010, she noticed that members of the
Gupta family had taken over control of the proceedings and were appearing
to be directing the programme;
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j) During the said visit, the Chief Executive Officer (CEO) of Jet Airways
wanted to meet with her on several occasions;
k) At the time, there were rumours in the media about SAA ceasing to operate
the Johannesburg - Mumbai route;
m) During August 2010 in a joint South Africa / India meeting held in South
Africa, rumours started circulating about her removal as Minister of DPE;
and
n) On 31 October 2010, she met with President Zuma and he dismissed her
as Minister.
5.17. I interviewed the Deputy Minister of Finance, Mr Mcebisi Jonas (Mr Jonas) to
establish facts regarding allegations that he was offered a Cabinet post my
members of the Gupta family. He informed me of the following:
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e) The initial messages were about the invitation to attend the South African
Awards Ceremony hosted by the Gupta family;
f) The event was scheduled for 18 October 2015 and Mr Jonas declined the
invite due to his busy schedule;
j) Mr D. Zuma later arrived and a short while into the meeting, indicated that
the place was crowded and he needed to move to a more private place for
a discussion with a third party to which he agreed. The location was not
disclosed to him;
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l) He was unfamiliar with the area and had never been to the Gupta family
residence before;
o) Once inside the residence, they were joined by Mr Ajay Gupta, whom
Mr Jonas had never met before and recognised him from articles in the
press);
q) He apparently indicated that they were well aware of his activities and his
connections to Mr Mantashe and the Treasurer of the ANC, Dr Zweli Mkhize
(Dr Mkhize), alleging that he was part of a faction or process towards
undermining President Zuma;
r) Mr Ajay Gupta informed Mr Jonas that they were going to make him
Minister of Finance. Mr Jonas reported that he was shocked and irritated by
the statement;
s) He declined the position and informed Mr Ajay Gupta that only the
President of the Republic can make such decisions;
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b) He does not remember the exact date of the meeting but it was “a couple”
of months prior to his removal as Minister of Finance;
c) At the time, there was speculation in the media about his removal. He
therefore thought the alleged offer was just a “bluff”;
d) He was removed from his post as the Minister of Finance by the President
on the evening of 8 December 2015;
f) He apparently stated that it was discussed in the so called “Top Six” of the
ANC; and
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g) Mr Nene however stated that he knew that Heads of States could not make
appointments on behalf of the BRICS Bank. The appointment of Mr Nene to
the African Regional Centre of the BRICS Bank never materialised.
c) Mr Jonas informed him that he was offered a Cabinet post by one of the
Gupta family brothers;
d) He stated that they informed him they made R6 billion from the State and
wanted to increase it to R8 billion;
f) He met with the President Zuma on 13 December 2015 and the President
wanted him to become the Minister of Finance as the markets needed to be
stabilized or settled;
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h) Upon taking over the role of Finance Minister, staff at National Treasury
informed him that on 11 December 2015, the former Minister of Finance Mr
Van Rooyen arrived at National Treasury with Ian Whitley and Mohammed
Bobat as advisors; and
b) On his way to the meeting and as he was driving out of the GCIS building in
Pretoria, he received a call from a Personal Assistant at Mahlamba Ndlopfu
(Official residence of the President) saying: “Ubaba ufuna ukukhuluma
nawe” (loosely translated, the President wants to talk to you);
c) The President came on the line. He greeted me and said: “Kuna labafana
bakwaGupta badinga uncedo lwakho. Ngicela ubancede” (loosely
translated, the Gupta brothers need your help, please help them);
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e) Mr Maseko met with Mr Ajay Gupta and one of his brothers, whose name
he could not recall;
g) As GCIS CEO, Maseko was in charge of a media buying budget of just over
R600-million a year;
i) He further informed Mr Ajay Gupta that GCIS did not have the advertising
budget and that it was with the various departments;
k) Mr Ajay Gupta apparently stated that tell us “where the funds are and inform
the departments to provide the funds to you and if they refuse, we will deal
with them. If you have a problem with any department, we will summon
ministers here”;
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m) Mr Maseko stated that a few weeks later, he received a call from a senior
staffer at The New Age newspaper who demanded a meeting with him. It
was on a Friday and Mr Maseko was on his way to the Nedbank Golf
Challenge in Sun City. He apparently requested the newspaper employee
to make an appointment with his office on Monday;
n) The said employee apparently said to Mr Maseko, " I am not asking you. I
am telling you. The meeting has to happen. It is urgent because of the
launch of the newspaper.” This was followed by a call from Mr A. Gupta an
hour later. He apparently demanded a meeting the next day, which was a
Saturday. Mr Maseko stated that he informed Mr A. Gupta that he was on
his way to Sun City for a golf tournament and they could arrange the
meeting on Monday; and
5.21. I obtained and analysed the telephone records of persons implicated by Mr Jonas to
corroborate his statements. Mr Jonas further made available his mobile phone
which he used at the time for the inspection and analysis of the contents. In this
regard, I secured via subpoena, telephone records of the following persons in terms
of Section 7(4) and 7(5) of the Public Protector Act, 1994:
a) Mr Jonas;
b) Mr D. Zuma; and
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c) Mr Hlongwane.
5.22. I further secured via subpoena, telephone records of Mr Van Rooyen in terms of
Section 7(4) and 7(5) of the Public Protector Act, 1994.
5.23. My analysis of the above telephone records and Mr Jonas mobile phone showed
the following:
b) Prior to that, Mr Jonas had never communicated with Mr D. Zuma using the
mobile number provided to us;
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f) The telephone records show that both Mr Jonas and Mr D. Zuma were at
the Hyatt Regency Hotel on 23 October 2016 between 1:00 and 2:00 PM;
g) The records further show that there were calls between Mr D. Zuma and Mr
Hlongwane on 23 October 2916 between 12:56 and 13:25 PM;
k) The telephone records show that Mr Jonas was at the airport on at 16:42:33
PM on the same date.
5.24. The above telephone communication appears to confirm Mr Jonas version of events
that prior to October 2015, he had never communicated with Mr D. Zuma.
a) The records further appear to confirm his version of events that he met with
Mr D. Zuma at the Hyatt Regency Hotel in Rosebank who later transported
him to Saxonwold.
d) Having had regard to the wider allegations including the allegations that
members of the Gupta family are involved in the appointment of Cabinet
members, I reviewed the telephone records of Mr Van Rooyen to establish
his whereabouts on 8 December 2015, the day Mr Nene was informed by
President Zuma that he will be removed as Minister of Finance.
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5.25. Mr Ajay Gupta denied that Mr Van Rooyen visits his residence during my interview
with him.
a) The letter states “With respect to the alleged meeting involving Deputy
Finance Minister Jonas, I had been made aware (by Duduzane Zuma) that
Deputy Finance Minister had made statements that I was blackmailing him.
I asked Duduzane Zuma to urgently convene a meeting between the three
of us”;
c) “At the private venue, the blackmail story was specifically raised with
Deputy Finance Minister Jonas. He (Jonas) stated that he had no
recollection of any such blackmail conversations with anyone.”
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d) During the discussion, a Gupta family member entered the room briefly and
then left. I categorically deny that there was ever a discussion or offer, by
anybody, of any government position to Deputy Minister Jonas. No
commercial discussion took place either.”
e) Member of the Gupta family are his casual acquaintances and he does not
have a business relationship with them;
g) He denies that Mr Jonas was offered a Cabinet post during the meeting;
and
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h) He also denies that he drove Mr Jonas to the airport and that they had
agreed to have a further meeting.
5.28. I met with the President on 6 October 2016 to solicit his response to the above
allegations. He did not respond to any of my questions.
5.29. Ownership of a coal mine opens the possibility to exporting coal to foreign markets
to meet the energy requirements of other countries. As a result, Eskom’s strategic
objectives, financial resources and size of market share has positioned the SOE as
a ‘king maker’ in the coal mining industry.
5.30. In line with the PFMA an SOE must take care in exercising its influence over the
industry its ambit falls within and act in a responsible, ethical and fair manner that
furthers the transformation objectives of the country as a whole.
5.31. Being an accounting institution as defined in the PFMA, Eskom’s and its
leadership’s first responsibility is to the entity itself, and they must ensure that the
SOE implements its strategies and operations in a manner that is compliant with
laws and regulations of the country.
5.32. Eskom’s and its leadership’s first responsibility is to the entity itself, and they must
ensure that the SOE implements its strategies and operations in a manner that is
compliant with laws and regulations of the country.
5.33. Eskom also has a responsibility to manage conflicts of interest in the business.
Conflicts of interest are common in SOEs, thus, the effective management of the
risks that can arise is crucial in successfully managing the SOE. A conflict of
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5.34. Eskom falls under the portfolio of the Department of Public Enterprise, it is important
for an SOE to manage conflicts of interests and act in accordance with the
Constitution and the PFMA.
5.35. The same conditions would apply should the stakeholder be required to perform
specific statutory functions defined in legislation e.g. Section 11 of the Mineral
Petroleum Resource Development Act, which states that a mining or a prospecting
right may not be transferred from one company to another without the Minister of
Mineral Resources written consent.
5.36. Eskom Conflict of Interest Policy 32-173, was signed by the Chairman of the Board,
Mr Zola Tsotsi, on 29 August 2014.
a) “Eskom subscribes to ethical values and legal principles. This requires that
Eskom, its directors, employees, customers, and suppliers act with integrity
and create public confidence by conducting business in a fair, impartial and
transparent manner. For this reason, Eskom makes every effort to ensure
that conflicts of interest do not compromise or are not perceived to
compromise its business decisions and actions.
b) Eskom is also committed to fair, objective and transparent business
dealings, and for this reason care must be taken when accepting or offering
any business courtesies. Business courtesies are used to build good
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c) The employee and director have the obligation to declare and manage
conflicts of interest. This process is critical to ensure that the objectivity and
integrity of the employee or director are not compromised, that the
employee or director acts in Eskom’s best interest, and that Eskom avoids
situations where it can be accused of improper or unfair conduct.”
5.38. Paragraph 2.2.19 states as follows: “Related parties of employees must not engage
in, nor have interests in any Eskom contract where there is a conflict of interest.
This includes third-party related transactions with an indirect link to an Eskom
contract (for example, having a personal or other interest in a business that has an
interest in a Supplier to Eskom).”
(1) When used in respect of two persons, means persons who are connected to
one another in any manner contemplated below:
(a) an individual is related to another individual if they,
(i) are married, or live together in a relationship similar to a marriage;
or
(ii) are separated by no more than two degrees of natural or adopted
consanguinity or affinity;
(b) an individual is related to a juristic person if the individual directly or
indirectly controls the juristic person, as determined in accordance with
the definition of control as set out in subsection (2) below; and
(c) a juristic person is related to another juristic person if—
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5.40. Paragraph 3.5 deals with Roles and Responsibilities, 3.5.1 and 3.5.2 reads as
follows:
b) Directors must exercise the powers and perform the functions of a director in
good faith and for a proper purpose; in the best interests of the company;
and with the degree of care, skill and diligence that may reasonably be
expected of a person carrying out the same functions in relation to the
company as those carried out by that director and having the general
knowledge, skill and experience of that director.”
1 Oakbay 29.05%
2 Mabengela 28.53%
3 Fidelity 12.91%
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4 Accurate 8.01
5 Elgasolve 21.5%
Total 100%
5.45. Centaur Mining South Africa (Pty) Ltd (“Centaur”) is registered in South Africa and
is a subsidiary of Centaur Holdings Ltd which is registered in the UAE. In 2016,
Centaur signed a $100,000,000.00 (R1,500,000,000.00) revolving credit deal with
an anonymous UAE-based family to expand its mining and natural resources
projects in South Africa. Centaur also purchased the De Roodepoort coal mines in
Mpumalanga during 2016. Centaur is one of the entities which contributed to the
purchase price of OCH.
5.47. Trillian Capital Partners (Pty) Ltd (2015/111759/07) (“TCP”) is a diversified financial
services and advisory firm with expertise in the fields of finance, management
consulting, asset management, securities, engineering and property. TCP has
various subsidiaries and has two major shareholders, namely Trillian Holdings (Pty)
Ltd (“Trillian Holdings”) (2015/168302/07) with 60% shareholding and Zara W
(Pty) Ltd (“Zara”) (2011/104773/07) with 25% shareholding. The remaining 15% is
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held by employees and other smaller shareholders. TCP is one of the entities which
contributed to the purchase price of OCH.
5.49. The sole director of Trillian Holdings is Mr Essa, who also owns 21.5% of Tegeta
through his company Elgasolve.
5.50. The sole director of Zara is Mr Eric Anthony Wood (“Mr Wood”), Mr Wood is also a
director in TCP.
5.51. Regiments Capital (Pty) Ltd (“Regiments”) (2004/023761/07) is one of the entities
which contributed to the purchase price of OCH.
Conflict of interest
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5.55. Primary interest refers to the principal goals of the profession or activity, such as the
protection of clients, the health of patients, the integrity of research, and the duties
of public office.
5.56. Secondary interest includes not only financial gain but also such motives as the
desire for professional advancement and the wish to do favours for family and
friends, but conflict of interest rules usually focus on financial relationships because
they are relatively more objective, fungible, and quantifiable.
5.57. The secondary interests are not treated as wrong in themselves, but become
objectionable when they are believed to have greater weight than the primary
interests.
5.58. The conflict in a conflict of interest exists whether or not a particular individual is
actually influenced by the secondary interest. It exists if the circumstances are
reasonably believed (on the basis of past experience and objective evidence) to
create a risk that decisions may be unduly influenced by secondary interests.
5.60. SOE’s are institutions/entities through which the Executive delivers on services. The
Executive Authority (Responsible Minister) plays various roles in its relationship with
the SOEs. On one hand, Government as an owner and shareholder is concerned
with obtaining a suitable return on investments, and ensuring the financial viability of
the SOE. On the other hand, Government as policymaker is concerned with the
policy implementation of service delivery. Finally, Government as regulator is
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concerned with the industry practices of SOEs, pricing structures, and the interests
of consumers.
5.61. The process to select and recommend a person to a SOE board is unclear and
undefined in government protocols, safe to say the process is not without
appointments that conflict personal and official interest.
5.63. It is for these reasons that when a Minister recommends a board, his/her mind must
be applied to select suitable individuals that would reduce the levels of conflicting
interest.
5.64. It is important for the executive authority of the SOE (shareholder) and Cabinet to
consider whether there are conflicts that may influence the objective performance of
the Board and whether:
a) A board member might make a financial gain, or avoid a financial loss, at the
expense of the SOE.
c) There are Board members that receive financial or other incentives to favour the
interest of a particular party, over the interests of the SOE.
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d) If a member of the Board receives or will receive from a person other than the
SOE, an inducement in relation to a service provided to the SOE in the form of
money, goods or services, other than the salary the employer receives for his role
in the SOE.
5.65. If such scenarios arise, the shareholder (in this case the government and the
Minister of Public Enterprise) should take steps to mitigate the risks posed to the
SOE.
5.66. I further noted Eskom Minutes of the Board Tender Committee Meeting No 07/2014
in the Huvo Nkulu Boardroom, Megawatt Park on 12 August 2014 at 07:30.
5.67. Page 12 of the minutes reads as follows: “Pegasus Risk Consulting had been
requested to provide probity checks on Optimum Coal Mine (Pty) Ltd (“Optimum
Coal”). The Auditors reported that they were unable to confirm the shareholding of
the Deputy President in one of the holding companies called Lexshell 849 (Pty)
Limited. This rendered their finding inconclusive. It was submitted that the purpose
of probity checks was that there should not be real or perceived bias. The fact that
Eskom had a contract with a company in which the country’s Deputy President was
a shareholders may lead to perceived bias, but it was submitted that there was an
existing contract between Optimum and Eskom, which would run until 2018. This
contract had been concluded prior to the Deputy President assuming that role but
the perception in the mind of the public would have to be managed.”
5.68. At the time of the above mentioned board meeting, the Eskom board was as
follows:
Name Position
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5.69. The Board of Eskom as mentioned above, made a concerted effort to manage any
and all conflicts that may arise, be it an actual conflict or a perceived conflict.
5.71. The Board of Eskom was recommended by Minister Lynn Brown and appointed by
Cabinet during September 2015. The Eskom Board at the time of the purchase of
OCH, as well as the awarding of certain contracts to Tegeta, consisted of twelve
individuals, namely:
5.72. These individuals constituted the governing body of Eskom. They had absolute
responsibility for the performance of the SOE and is fully accountable for the
performance of the SOE. Governance principles regarding the role and
responsibility of SOE Boards are contained in the PFMA and the Protocol on
Corporate Governance.
5.74. Dr Baldwin Ngubane (“Mr Ngubane”) is a director of Gade Oil and Gas (Pty) Ltd
(“Gade Oil”)(2013/083265/07). Mr Essa was a previous director of this entity.
5.75. Mr Mark Pamensky (“Mr Pamensky”) is/was a director of the following entities:
Name of Entity Registration Comment/ Observation
Number
ORE (Mentioned above) 2009/021537/06 Mr Atul Gupta owns 64% of this entity
Shiva Uranium (Pty) Ltd (“Shiva 1921/006955/07 ORE has a 74% shareholding in Shiva
Uranium”) Uranium.
Tegeta has a 19.6% shareholding in
Shiva Uranium.
Yellow Star Trading 1099 (Pty) 2000/020259/07 Mr Essa was a director of this entity.
Ltd
B I T Information Technology 2003/022444/07 Mr Pamensky was a previous director.
(Pty) Ltd Kubentheran Moodley (“Mr Moodley”) is
also a director of this entity and is the
spouse3 of ESKOM board member Ms
Viroshini Naidoo.
Mr Moodley is a special advisor to the
Minister of Mineral Resources and is
the sole director of Albatime (Pty) Ltd
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(2009/0211474/07)(“Albatime”).
ALBATIME is one of the entities which
contributed to the purchase price of
OCH.
5.76. Public records confirm that Mr Pamensky has direct business interests in ORE and
Shiva Uranium for which he received economic benefit. Mr Pamensky is also a
member of Eskom’s Board. By virtue of officio function and role in Eskom he would
have or could have access to privilege or sensitive information regarding OCH and
various Eskom Contracts. Such information coupled with a personal economic
interest would give Tegeta an unfair advantage over other interested buyers. It
would be very important to understand the role of this individual in this transaction in
light of a high degree of irregularities that appears to have occurred in Eskom.
5.78. Nazia Carrim (“Ms Carrim”) is the spouse of Muhammed Sikander Noor Hussain
(“Mr Hussain”). Mr Hussain is a family member of Mr Essa. Ms Carrim has since
resigned from the Board of Eskom.
5.79. Mr Romeo Khumalo (“Mr Khumalo”) resigned from the board of Eskom in April
2016. Mr Khumalo and Mr Essa were directors of Ujiri Technologies (Pty) Ltd
(2011/010963/07). Mr Khumalo has since resigned from the Board of Eskom.
5.81. The following was declared by the Eskom Board members in relation to the above
mentioned conflicts identified:
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5.82. Ms D Naidoo, in her declaration made on 19 February 2016, lists her husband as
Mr K Moodley who is a part time advisor to the Minister of Mineral Resources and
declares that this may be a conflict if she is in a forum at Eskom which seeks to
influence the Governments mineral policy. Ms D Nadioo, lists herself as an
employee of Albatime. This is as per her declaration made on 19 February 2016
and 31 May 2016.
5.83. Mr Ngubane does not list himself as a director of Gade Oil in his declaration made
on 31 May 2016.
5.84. Ms Carrim did not declare her relationship with Mr Essa in her declaration made on
31 May 2016.
5.85. Ms Cassim does not list Sahara Computers has her previous employers.
5.86. Mr Pamensky does declare all his directoships held in ORE, Yellow Star Trading
and BIT Information Technology. Mr Pamensky further states that he does not take
part in any HR or procurement related activities.
5.87. The board members present during this meeting were. Mr Z Khoza, Ms C Mabude,
Ms D Naidoo and Ms N Carrim.
5.89. The board approved the sale of shares in OCM to Tegeta and released OCH from
the guarantee given to Eskom.
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5.90. It was also resolved that the CSA between OCH and Eskom be ceded to Tegeta.
Minutes of the Special Eskom Board Tender Committee Meeting 09-2015/16 held at
the Huvo Nkulu Boardroom on 07 March 2016 at 18H00
5.91. The board members present during this meeting were. Mr Z Khoza, Ms C Mabude,
Ms D Naidoo and Ms N Carrim.
5.92. Ms D Naidoo in this meeting, declared that her husband was an advisor to the
Minister of Mineral Resources, it was agreed that this posed no conflict in relation to
the items on the agenda.
5.93. A mandate was given to negotiate coal supply agreements with coal suppliers for
the supply of coal to Arnot power.
5.96. The following can be noted with regards to Mr Molefe and Mr Ajay Gupta:
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5.97. The above illustrates that between the period 2 August 2015 and 22 March 2016 Mr
Molefe has called Mr Ajay Gupta a total of 44 times and Mr Ajay Gupta has called
Mr Molefe a total of 14 times.
5.98. Between 23 March 2016 and 30 April 2016, Ms Ragavan made 11 calls to Mr
Molefe and sent 4 text messages to him. Of the calls made, 7 were made between
9 April 2016 and 12 April 2016. This includes one call made on 11 April 2016.
5.99. The following diagram depicts the number of instances placing Mr Molefe within the
Saxonwold area:
5.100. For the period 5 August 2015 to 17 November 2015, Mr Molefe can be placed in the
Saxonwold area on 19 occasions.
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5.101. The diagram below, further depicts instances of contact between Mr Molefe, Mr
Howa, Mr Rajesh Kumar Gupta and Mr Atul Gupta:
5.102. Minister Zwane, is responsible for ensuring policymaking and policy implementation
of service delivery for ESKOM. He also oversees the regulation of the MPRDA. In
the execution of his functions the Minister relies on advisors. Mr Moodley was an
advisor during the Tegeta purchase of OCH
5.104. Media, business and politicians have questioned the role of the Minister Zwane in a
Tegeta, OCH deal. In an article styled “Zwane denies joining Guptas on trip to
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Switzerland” which was published on 25 May 2016, it was stated that Minister
Zwane had met with Glencore CEO Mr Ivan Glasenberg at the Dolder Grand Hotel
in Zurich.
5.105. Travel records obtained from Emirates Airlines confirm that Minister Zwane’s travel
itinerary for a trip undertaken between 29 November 2015 to 7 December 2015,
which includes whether or not the flight was boarded, is as follows:
1769244673469 R 52,400.00
1769244734145 R 44,230.00
Total R 96,630.00
5.107. It is unclear as to why Minister Zwane did not board his flights from 2 December
2015 to 5 December 2015. It is further unclear as to why an additional flight was
booked from Dubai to Johannesburg on 7 December 2015. However, I still need to
interview Minister Zwane in this regard.
5.108. What is further peculiar is how Minister Zwane, managed to reach Dubai on 7
December 2015 as there are no flight details for him travelling from Zurich to Dubai.
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5.109. If Minister Zwane did in fact travel officially to meet Mr Glasenberg, it would imply
that his travel and reason for travel would have been authorised by the president.
5.110. I have also received information from an independent source that Minister Zwane
did in fact meet with Mr Glasenberg in Switzerland at the Dolder Hotel around 30
November 2015 to 5 December 2015. The other individuals present during said
meeting/s was Mr Rajesh (Tony) Gupta) as well as Mr Essa.
5.111. Media reports have speculated how it came to be that Tegeta was awarded
contracts with Eskom.
5.112. In order to refute and/or prove the allegations surrounding the awarding of contracts
to Tegeta and the alleged preference which has been given to them, I performed an
extensive review of all documentation received from various individuals and/or
entities.
5.113. In addition to information received from various other individuals, the bulk of the
information was received was from Eskom, it should be noted that Eskom has
reserved their right to supplement the information supplied to my office and as such
the information presented below represents what I received from Eskom.
5.114. I noted a report from National Treasury signed 12 April 2016 by Mr Kenneth Brown,
Chief Procurement Officer in National Treasury, titled REPORT ON THE
VERIFICATION OF COMPLIANCE WITH TREASURY NORMS AND STANDARDS
– APPOINTMENT OF TEGETA EXPLORATION AND RESOURCES (PTY) LTD.
The ensuing paragraphs details the contents of the report as well as the certain
annexures attached thereto.
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5.115. This report deals primarily with the supply of coal by Tegeta, from the Brakfontein
Colliery and Brakfontein Colliery Extension to the Majuba Power Station.
5.116. The following can be noted with regards to the meeting held on 9 May 2014:
b) Eskom stated that they prefer dealing with companies that are 50% +1 share
black owned.
5.117. The following can be noted with regards to the meeting held on 10 July 2014:
5.118. The following can be noted with regards to the meeting held on 23 September 2014:
a) The combustion test results from Brakfontein Coal is potentially suitable for the
Kendal, Kriel units 4-6, Lethabo and Matimba Power Stations.
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b) It was expressly stated that Eskom would only be able to consider a seam 4
Lower of Brakfontein as the seam 4 Upper did not meet Eskom’s requirements as
per the sample provided.
c) It was further stated that the Power Stations which could receive coal from
Brakfontein have all their coal needs met for the financial year. As such an
agreement between Eskom and Tegeta for the supply of coal can only be
reached at the earliest on 1 April 2015.
5.119. The following can be noted with regards to the meeting held on 23 January 2015:
a) It was reiterated that only the seam 4 Lower would be suitable for use at Eskom
power stations.
b) Tegeta said that it would be difficult to mine only the seam 4 Lower.
c) Eskom requested that Tegeta revise their operations in order to only mine the
seam 4 Lower.
d) Eskom further expressed concern at the prices offered by Tegeta. Tegeta offered
a price of R17/GJ for the seam 4 Lower and R15/GJ for the blended product
(Should be noted that the blended product was stated as not being suitable for
Eskom).
e) It was agreed that Tegeta would revise their price offering, as well as present
plans on how to address the quality of the seam 4 Upper.
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5.120. The following can be noted with regards to the meeting held on 30 January 2015:
a) Eskom stated that the price of coal was too high in comparison to the price of coal
which is currently being supplied to Majuba Power Station.
b) Eskom stated that any price agreed on between the parties would set new
standards on the price of coal sold to Eskom.
c) Tegeta requested to call the Eskom board and obtain a mandate to adjust the
price offer.
d) Tegeta revised their coal offer to 13.50/GJ for a five year contract at
approximately 65000 tonnes per month.
e) Eskom accepted the Tegeta offer and further stated that the coal must meet all
technical and combustion requirements of the Majuba Power Station.
f) A coal supply agreement was first signed between Eskom and Tegeta on 10
March 2015 with the commencement date being 1 April 2015.
5.121. A letter signed on 31 August 2015 was sent to Tegeta from Mr Matshela Koko (“Mr
Koko”) of Eskom with title Suspension of Coal Supply: Brakfontein Colliery and
Brakfontein Colliery Extension. The contents of the letter are as follows:
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b) This is of great concern to Eskom as it now calls into question the exact nature
and quality of the coal that Brakfontein Colliery and Brakfontein Colliery
Extension supplies to Eskom in terms of the coal supply agreement;
5.122. Additional letters of suspension, signed 31 August 2015 were also sent to SGS
Services South Africa Pty Ltd and Sibonisiwe Coal Laboratory Services CC.
5.123. A letter signed on 5 September 2015 was sent to Tegeta from Mr Matshela Koko
(“Mr Koko”) of Eskom with title Upliftment of the Suspension of Coal Supply:
Brakfontein Colliery and Brakfontein Colliery Extension. The content of the letter is
as follows:
5.124. The above matter and our letter dated 31 August 2015 refer.
a) Eskom hereby lifts the suspension of coal supply from the Brakfontein Colliery
and Brakfontein Colliery Extension effective immediately whilst it continues its
investigation into the inconsistencies in the coal quality and management
process.
b) License in terms of Chapter 4 of the National Water Act, 1998 (Act No. 36 of
1998)
5.125. This document is the water license issued to Tegeta. It is signed and dated 22
December 2014.
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5.126. It should be noted that Tegeta first approached Eskom to supply coal on 9 May
2014. This is 6 months before it was granted a water license in order to proceed
with mining.
5.127. The report from National Treasury makes the following findings and
recommendations with regards to their investigation:
5.128. There is no evidence to suggest that Tegeta settled the fine which it received from
the environmental authorities. This was noted in a review of the annual financial
statements of Tegeta where no mention is made of the any fines imposed on it.
5.129. It is unclear why the coal supply agreement entered into between Eskom and
Tegeta include the seam 4 Upper, where this was previously deemed unsuitable for
Eskom.
5.130. Eskom allowed Tegeta to supply the stockpile coal which did not conform to its
standards.
5.131. There is no evidence to suggest that any remedial action was implemented by
Eskom in order to rectify the issues identified with the coal being supplied by
Tegeta.
5.132. National Treasury required Eskom to submit evidence of effective and appropriate
steps taken to ensure that Tegeta:
b) Complied and continue to comply with all obligations under applicable laws;
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f) Selectively mined the seam, use a grader to remove the major inseam
partings and avoid over drilling and blasting to improve the quality of coal;
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5.133. Apart from the abovementioned report received and reviewed from National
Treasury, I did not further investigate the award of contracts to Tegeta to supply
coal to the Majuba Power Station. This will form part of the second phase of the
investigation and will possibly be included in the subsequent reports to be
released on these matters.
5.134. An important and integral part of the investigation is the contracts as well as the
general business relationship between Eskom and OCH/OCM.
5.135. I would like to point out that I have taken extracts out of each contract and/or
correspondence which I have deemed relevant for the investigation at hand.
5.136. On 4 January 1993, Eskom entered into a Coal Supply Agreement (“CSA”) with
Trans-Natal Coal Corporation Limited and Trans-Natal Collieries Limited
(Operations of Optimum Collieries were transferred to this holding company). The
terms of the agreement was inter alia as follows:
5.137. The agreement was for the supply of coal to the Hendrina Power Station.
5.138. The agreement was to run until 31 December 2008, with Eskom having the option
to extend this agreement to 31 December 2018.
5.139. There were numerous clauses in the agreement which detail the specifications
and quality of coal required to be supplied.
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5.141. The details of the First Addendum to the Hendrina Coal Supply Agreement (“First
Addendum”) are inter alia as follows:
5.142. The purpose of this agreement was to obtain consent from Eskom to the sale of
Optimum Collieries from BHP Billiton Energy Coal South Africa Ltd (“BECSA”) to
OCH and OCM. Furthermore, consent was needed from Eskom for the “cession
and delegation by BECSA to OCM, of its rights and obligations in the terms of the
CSA”.
5.143. Eskom would consent to the cession and delegation on condition that OCH and
OCM agreed to new terms in relation to the CSA.
5.144. The maximum quantity of coal to be supplied per annum would be 5,500,000
tonnes.
5.145. The First Addendum also set out new requirements with regards to the quality of
coal being supplied and specifically a clause which provided that:
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a) “3.4.4 In the event that any of the Parties shall, at any time, be or become
of the view that the specification clauses 3.4.2 and 3.4.3 shall not be
properly and/or realistically representative of the cola which Optimum
Colliery shall reasonably be expected (in the event that it were to conduct
its operations in a proper manner and in accordance with best industry
standards) to achieve from the exploitation of the coal deposits constituting
the Optimum Colliery, such Party shall be entitled to notify them that it
wishes to re-negotiate such specification.
b) 3.4.5 On being so notified, the other Party shall enter into discussions and
negotiations in good faith with the first Party, in order to reach agreement
in respect of the amendment of such specification.
5.146. A further clause in the contract titled “Payment Rejection” is important in relation to
the future deals between Eskom and OCM. Clause 3.6.1.5 states as follows:
a) “In the event that any Quality Parameter shall fail to have been met for any
seven day rolling period, the purchase price payable by Eskom to
Optimum Colliery in respect of the coal (which shall not comply with the
Quality Parameters) on the seventh day of such period and/or any
subsequent consecutive day on which the Quality Parameters, or either of
them, shall fail to have been met, shall be reduced to R1-00 per tonne.”
b) The agreement further stipulated the CSA shall last until 31 December
2018 and is referred to as the Additional Coal Period.
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5.147. The details of the Second Addendum to the Hendrina Coal Supply Agreement
(“Second Addendum”) are inter alia as follows:
5.148. Eskom and OCM by way of arbitration both agreed to amend the CSA.
5.149. The price payable by Eskom per tonne of coal would be R115.00 per tonne on an
escalation basis as set out in the CSA.
5.151. The Third Addendum to the Hendrina Coal Supply Agreement (“Third Addendum”)
which came into effect as at 15 January 2013, allowed for the deletion of the
provisions of clause 4.1 and clause 4.2 of the Second Addendum.
5.152. There were no other material changes or additions made to the CSA.
5.154. This is a letter between Optimum Coal Mine and Eskom dated 23 April 2013. The
contents of the letter is as follows:
5.155. Referenced is made to a letter received from Eskom dated 22 April 2013 in which
Eskom expresses concerns regarding sizing specification in terms of the First
Addendum.
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5.156. OCM states that since discussions in September 2012 with Eskom, they have
made attempts to identify the reason for the change in sizing of the coal being
supplied.
5.157. OCM therefore wished to renegotiate the specifications as per clause 3.4.4 and
3.4.5 of the First Addendum.
5.158. On 3 July 2013 OCM sent this letter to Eskom formally invoking the Hardship
clause of the agreement. The contents of the letter is inter alia as follows:
a) OCM further set out reasons for the hardship as well as the relevant
circumstances which have arisen.
b) OCM stated that the difference between the cost to produce coal and the selling
price to Eskom is approximately R166.40.
c) OCM further stated that it expects to lose R881 million during the course of 2013
due to the sale of coal to Eskom in terms of the CSA.
d) The letter further sets out the numerous reasons as to why the cost as escalated
over the period of the CSA.
e) OCM further states that they wish to agree mutually acceptable amendments to
the CSA in order to resolve their hardship.
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and OCH could not reach agreement on a number of issues. This culminated in
the following agreement being signed.
Agreement between Eskom Holdings SOC Limited and Optimum Coal Mine
Proprietary Limited and Optimum Coal Holdings Proprietary Limited regarding a
process to engage on issues between the parties and for the review and future
extension of the Coal Supply Agreement for the Hendrina Power Station
5.160. Clause 2 of the agreement speaks of the “issues” that have arisen between the
Parties. The issues are listed as:
c) the quality of the coal supplied to Eskom and the price adjustment Eskom
is entitled to impose in respect thereof;
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5.161. Clause 5 of the sets out the terms and conditions under which the agreement
should be carried out. The following terms are of particular importance:
a) the Parties will instruct their attorneys to suspend the hardship arbitration
on the following basis by no later than 23 May 2014;
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f) Eskom will, with retrospective effect to 1 May 2014 until the termination of
the Settlement Process suspend the implementation of all penalties
(including AI, CV, ash, sizing and short supply) in relation to the CSA, on
the condition that Optimum Mine continues delivering coal in accordance
with the specification to be agreed in the Terms of Reference;
g) If the Parties are unable by the Validation Date to agree and execute
Terms of Reference, each of the Parties shall be entitled to advise the
other that it no longer wishes to participate in the Settlement Process in
which case the Settlement Process shall terminate;
h) The Parties agree that it is their current intention to conclude a new coal
supply agreement which will govern the supply from Optimum Mine to
Eskom from 1 January 2015; and
5.162. In letter dated 13 November 2014, OCM in essence informed Eskom of the
following:
b) The letter further gave Eskom proposed solutions whereby coal would be
supplied to Eskom for the period January 2015 to December 2018 at cost
and for the period January 2019 to December 2023 coal would be
supplied at cost plus an agreed upon margin.
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c) There were additional proposals made by OCM in the letter which sought
to give Eskom some sort of economic benefit in renegotiating term.
d) The letter further states that during these negotiation processes detailed
financial information has been shared with Eskom in order for Eskom
verify the costing information provided by OCM.
“neither Eskom nor OCM can accept the highly damaging situation
whereby OCM ceases operating. As a result, there is no option other than
Eskom and OCM reaching agreement to amend the Hendrina coal supply
agreement. OCM believes that Eskom understands this but is not willing to
conclude an agreement because it has residual concerns regarding OCM
and Glencore’s bona fides and whether the position really is as severe as
OCM has alleged. OCM believes that it has acted in the utmost good faith
and with full transparency, beyond what would normally be expected from
a commercial counterparty, to identify a solution which is fair and
reasonable for both parties. This letter includes further proposals in this
regard. If Eskom is still not satisfied, then we implore Eskom urgently to
engage with us so that we can seek to address and resolve Eskom’s
concerns and move towards an agreement.”
Draft Fourth Addendum to the Hendrina Coal Supply Agreement amongst Eskom
Holdings SOC Limited and Optimum Coal Mining Proprietary Limited and
Optimum Coal Holdings Proprietary Limited
5.163. The Draft Addendum was concluded after negotiations between the parties
progressed. It is evident from said draft addendum that alterations were made to
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the document by Eskom and OCH/OCM. The key aspects of the Draft Addendum
was that there would ultimately be a new negotiated price for the supply of coal.
Furthermore, there would be new agreed upon specifications for the quality of coal
to be supplied to the Hendrina Power Station.
5.164. The following board members were present during said meeting:
a) The referral from the Board Tender Committee for approval of the
mandate to conclude negotiations with Optimum Coal Mine for Coal
Supply to Hendrina Power Station was tabled, details of which had been
circulated to members.
b) It was requested that the submission should be taken off the Agenda and
submitted to the Acting CE before being tabled for approval. In response
to a member’s suggestion that Resolution 2.5 (around the mandate to
negotiate but not to conclude with Optimum, for Eskom to take up a free
carry shareholding of 10% to 15% equity and/or to engage with Optimum
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5.166. The members of the Eskom board resolved the following in relation to the above
mentioned matter:
a) the Referral from the Board Tender Committee for approval of the
mandate to conclude negotiations with Optimum Coal Mine for Coal
Supply to Hendrina Power Station is not approved: and
b) the mandate should be referred to the Acting Chief Executive before being
tabled at Board for approval.”
5.167. This letter is stated as a follow up letter to the one dated 13 November 2014. The
contents of the letter is as follows:
5.168. OCM states that in order to mitigate losses, it is closing its export operations. OCM
further states that following this announcement Eskom’s negotiation team
approached OCM and significant progress was made with regards to negotiating a
new agreement.
5.169. OCM and the Eskom negotiating team had agreed the increase of the price of coal
from 1 April 2015 to 31 December 2018 to cost (which costs were audited
extensively by Eskom and its advisers). Additional terms agreed upon would also
include an extension of the agreement beyond 31 December 2018 for a 5 year
period whereby the price of coal would be cost plus an agreed upon margin.
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a) “Eskom’s negotiating team advised OCM that the terms of the deal were
subject to approval by the Executive-Procurement Committee and then the
Eskom Board Procurement Sub-Committee. On 25 March 2015, OCM was
advised that the Executive-Procurement Committee had approved the
terms of the deal. Thereafter, OCM were advised that the deal was
presented to the Procurement Sub-Committee of the Eskom Board on 15
April 2015, but the sub-committee was not willing to make a decision and
had referred the matter to the full Eskom Board for consideration. We
understand that on 23 April 2015 the full Eskom Board did not make a
decision and requested further information. Following such board meeting,
OCM continued to engage with Eskom in the expectation that the deal was
still supported by Eskom and that the negotiations with Eskom would result
in some deal, perhaps on amended terms, being concluded. On 18 May
2015, the CEO of OCM met with the Acting CEO of Eskom, who advised
that Eskom would not be concluding any deal with OCM and would
continue enforcing the existing coal supply agreement.”
5.171. OCM states that it has exhausted its available banking facilities which sit at R2.5
Billion. OCM further stated that it requires approximately R100 million per month in
order to continue its operations and that its shareholders have advanced
approximately R1 billion to OCM since October 2014.
5.172. OCM states that if this position with Eskom continues it would be forced to place
OCM in business rescue. However, OCM reiterates that even in business rescue,
the only possible way to save the business would be to renegotiate the contract for
the Hendrina CSA.
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5.173. OCM received the above mentioned letter from Eskom which was signed on 10
June 2015 by Mr Molefe who was the acting Chief Executive at the time. The letter
states as follows:
a) “We acknowledge receipt of your letter dated 22 May 2015 and the issues
you raise in it. However, considering Eskom’s current financial position,
which is public knowledge, we unfortunately cannot afford to reset the
contract price, to that proposed by Optimum Coal Mine.
b) It remains priority for Eskom, to ensure the security of the coal supply to
Hendrina Power Station not only for the remainder of the current coal
supply agreement but also for the remaining life of Hendrina Power
Station. Therefore it remains critical to all stakeholders that Optimum Coal
Mine continues to deliver coal as per the current contract.
c) Eskom, to the extent that the Co-Operation Agreement still regulates the
settlement process hereby notifies Optimum Coal Mine in terms of clause
5.6 of the Agreement, that it no longer wishes to participate in the
settlement process. Eskom accordingly hereby terminates the settlement
process and confirms that the provisions of the CSA and addenda are
forthwith applicable in respect of, inter alia, coal qualities and quantity
requirements of the Hendrina Power Station.
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5.174. The above mentioned letter dated 23 June 2015, is the response by OCM to the
Eskom letter mentioned above. The letter reads as follows:
a) “We refer to your letter dated 10 June 2015, which we received on 22 June
2015.
b) We will respond in due course to the substance of your letter, but in light of
your termination of the Settlement Process (as defined in Co-Operation
Agreement), we wish to advise that in accordance with the provisions of
clause 5.2.4 of the Co-operation Agreement, we hereby immediately
reinstate the Hardship Arbitration initiated by Optimum Mine and Optimum
Holdings against Eskom, by way of their statement of claim dated 28
February 2014.
5.175. OCM sent the above mentioned letter to Eskom on 30 June 2015, the contents of
the letter sets out OCM’s proposed new offer to supply coal to Eskom pursuant to
a meeting between Mr Ivan Glasenberg (Glencore), Mr Clinton Ephron (OCM), Mr
Molefe and Mr Vusi Mboweni. OCM makes inter alia the following offer to supply
coal to Hendrina Power Station:
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a) For the period 1 July 2015 to 31 December 2018 coal will be supplied at R 300
per ton exclusive of VAT subject to escalation on a yearly basis;
b) For the period 1 January 2019 to 31 December 2023 coal will be supplied at a
rate of R 570 per ton exclusive of VAT subject to escalation on a yearly basis;
5.176. On 1 July 2015, Glencore received a letter from KPMG Services (Pty) Ltd, in which
they state that they have been requested by one of their clients who at the time
wish to remain anonymous. The purpose of the letter was an expression of interest
to purchase either OCM or OCH. Further contents of the letter states as follows:
a) Their clients wish to purchase OCM and/or all shares in OCH for R2 billion.
c) The letter further states that “the senior management of our client and the
majority shareholder have approved our release of this Expression of Interest”.
d) The letter is signed by Nick Matthews who is listed as a Partner, Deal Advisory
Head Mergers & Acquisitions.
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Demand for Repayment in Respect of Coal which Failed to Comply with the Quality
Specification of the CSA during the period 1 March 2012 to 31 May 2015
5.177. This was a letter sent by Cliffe Dekker Hofmeyr (“CDH”) on behalf of Eskom to
OCM dated 16 July 2015. The contents of the letter is as follows:
“2.5 Optimum has for a consecutive period from 1 March 2012 to 31 May 2015
(the “Supply Period”), failed to supply and deliver to Eskom coal which meets the
quality parameter contemplated by clause 3.4 of the First Addendum. The coal
supplied and delivered to Eskom, amongst others, failed to comply with the sizing
specifications, in that 20% to 45% of the coal supplied and delivered to Eskom by
Optimum on a monthly basis, during the Supply Period, was smaller than 0.81mm.
Despite this failure by Optimum, Eskom has, without prejudice to its rights in terms
of clause 3.6 of the First Addendum, paid Optimum for such coal, without applying
any adjustment or reduction to the payment, for Optimum’s failure to comply with
the quality parameters, even though Eskom was entitled to adjust or reduce the
payment accordingly.”
“2.6 Eskom has done a calculation of the reduction to the purchase price that
Eskom was entitled to impose on the payment to Optimum for the coal supplied
and delivered during the Supply Period, which failed to comply with the quality
parameters in clause 3.4 of the First Addendum. The reduction Eskom is entitled
to impose on the purchase price to Optimum for the Supply Period amounts to
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R2,176,530,611.99 (two billion one hundred seventy six million five hundred and
thirty thousand six hundred and eleven rand and ninety nine cents).”
5.178. The following can be noted with regards to the Business Rescue plan submitted
on 31 March 2016:
a) The board of directors of OCH took the decision on 31 July 2015 to place the
entity in Business Rescue.
“Aside from the statutory requirements prescribed in the Companies Act, the BRPs
have, in addition to the aforesaid-
1.6.2.1 taken full management control of the Company in substitution for its board
of directors in terms of section 140 (1) of the Companies Act, but have delegated
certain of their functions to members of the board of directors and pre-existing
management of the Company in accordance with the provisions of Chapter 6 of
the Companies Act;
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1.6.2.2 the BRPs have engaged with the management of the Company in order to,
inter alia, (i) determine the financial position of the Company; (ii) determine the
financial position of the Company; and (iii) identify the number of employees
employed by the Company;
1.6.2.3 had extensive engagement with all stakeholders of the Company and
OCM, including various Creditors, the Lenders, Eskom, the DMR, NUM, UASA,
the shareholders of the Company and Persons interested in the Company”
5.179. This letter is sent by CDH on behalf of Eskom to Werksmans dated 5 August 2015
in which they wish to proceed with arbitration proceedings in terms of the First
Addendum of the CSA. They further acknowledge that OCM and OCH has been
placed in Business Rescue and requests Werksmans to engage with the BRPs in
with regards to the arbitration.
5.180. The summons was served on 5 August 2015 to OCM and OCH by Eskom, the
summons was for Eskom’s claim for R 2,176,530,611.99.
Eskom Holdings SOC Limited / Optimum Coal Mine Proprietary Limited & Optimum
Coal Holdings Proprietary Limited
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5.181. This letter dated 6 August 2016 is from Werksmans to CDH and is a response to
the letter from CDH regarding arbitration and the summons served to OCH and
OCM. The contents of the letter is inter alia as follows:
a) Werkmans confirms that they act on behalf of the joint BRPs of OCM and
OCH, Mr Marsden and Mr van den Steen.
b) The letter references section 133 of the Companies Act 71 of 2008 which
states that no legal proceedings may be instituted against a company who is
in business rescue without the consent of the business rescue practitioner or
with the consent of the courts.
“6 Your client’s-
6.1 attempt to pursue the aforesaid arbitration proceedings through, inter alia, the
unilateral appointment by your client of an arbitrator; and
6.2 issuing of summons in which your client’s claim replicates the claim referred to
arbitration by your client, at a time when business rescue proceedings have
already commenced, are in direct contravention of section 133 of the Companies
Act.”
d) The letter further states that CDH’s client (meaning Eskom), should follow the
correct procedure and submit a claim to the BRP’s.
e) The letter further contests the appointment of the arbitrator and further states
that if they proceed with either arbitration or the court action, the BRP’s will
institute urgent proceedings to obtain an interdict against CDH and Eskom.
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Optimum Coal Holdings Ltd (In Business Rescue) and Optimum Coal Mine (Pty) Ltd
(In Business Rescue) letter dated 7 August 2015
5.182. This letter dated 7 August 2015 was sent from the BRPs to Mr Molefe as well as
other individuals at Eskom. The content of the letter is as follows:
a) The BRPs state that they have reviewed the CSA with Eskom as well as
correspondence between Eskom and OCM over a two year period.
b) The BRPs state that Eskom will obviously be a key stakeholder throughout the
business rescue proceedings of both companies.
c) They further request an urgent meeting with Eskom in order to discuss the
CSA between Eskom and OCM.
Optimum Coal Mine Proprietary Limited (In Business Rescue) / Eskom Holdings
SOC Limited Re: Coal Supply Agreement – Suspension of Agreement and offer to
supply letter dated 20 August 2015
5.183. This is a letter dated 20 August 2015 sent from Werksmans on behalf of the BRP’s
to Eskom. The content of the letter is as follows:
a) Paragraph 4 states:
“You would further be aware from the notices in respect of the business rescue
proceedings, the hardship claim initiated by OCM in 2013 and your extensive
engagement with OCM pursuant to the settlement process conducted in terms of
the co-operation agreement between Eskom and OCM dated 23 May 2014 (“Co-
Operation Agreement”) (which settlement process Eskom terminated on 10 June
2015), that the principal reason for the commencement of OCM’s business rescue
proceedings is the financial distress that the terms of the CSA have placed, and
continue to place, on OCM. The financial position of OCM was clearly
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c) The letter further states that due to the above circumstances, the BRP’s are
suspending all obligations of OCM in terms of the CSA.
d) They further state that the BRP’s are willing to supply coal to Eskom on terms
which are sustainable for OCM. The BRP’s went further and attached to the
letter an interim agreement, which was based on the initial negotiations
between Eskom and OCM. The interim agreement would see OCM supply
coal to Eskom at cash cost of production for OCM. The agreement would
further see Eskom paying on a weekly basis.
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Eskom Holdings Limited / Optimum Coal Mine Proprietary Limited and Optimum
Coal Holdings Proprietary Limited letter dated 21 August 2015
5.184. Letter from CDH representing Eskom to Werksmans, dated 21 August 2015. In
this letter Eskom requested all books in order to assess the economic viability of
the proposal submitted to them.
Optimum Coal Mine (Pty) Limited (In Business Rescue) letter dated 21 August 2015
5.185. The BRPs responded to the request from CDH in their letter dated 21 August
2015. Paragraph 2.2 with sub-heading “Long term supply agreement” of the letter
reads as follows:
“Eskom have already performed considerable work on the company’s cost of
production and due diligence. As part of the negotiations that commenced in May
2014 upon signing of the co-operation agreement a detailed due diligence was
performed by Eskom and their advisors (Nedbank Limited and Basis Point Points
Capital). The due diligence was led by Ayanda Nteta from Eskom’s Primary
Energy Division.
As part of the due diligence the following information was supplied to Eskom and
can be obtained from Ayanda Nteta:
Detailed costing and production models
Capital and amortisation schedules
Financial Statements
Management Accounts
Reserve and Resource Statements”
a) Annexure 1, to the letter sets out a cash flow summary of OCM. The
document lists its cost of production of coal as 22.32 R/Gigajoule (“GJ”).
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Eskom Holdings SOC Limited// Optimum Coal Proprietary Limited (In Business
Rescue) & Optimum Coal Holdings Proprietary Limited (In Business Rescue) letter
dated 24 August 2015
5.186. The letter dated 24 August 2015, is a reply to the letter dated 20 August 2015 from
Werksmans. The letter states as follows:
a) Eskom cannot negotiate interim coal supply agreement without full financial
disclosure.
b) The letter states that the BRP’s have given Eskom an ultimatum to either
accept the agreement or face coal supply being stopped to Hendrina Power
Station.
d) The letter concludes in saying that Eskom is willing to engage with the BRP’s
provided that coal supply to Hendrina Power Station resumes.
Optimum Coal Mine Proprietary Limited (In Business Rescue) / Eskom Holdings
SOC Limited Re: Coal Supply Agreement letter dated 26 August 2016
5.187. This letter from Werksmans dated 26 August 2015 is a response to the letter from
CDH dated 24 August 2015. The letter inter alia states as follows:
a) The BRP’s do not have sufficient funding to continue supplying coal under the
current CSA.
Optimum Coal Mine (Pty) Ltd (In Business Rescue) : Settlement Proposal letter
dated 17 September 2015
5.188. OCM states that it understands Eskom’s position in that it has a binding
agreement with OCM and that Eskom cannot ignore the agreement solely for the
purpose of rescuing OCM.
“an extension of the CSA which is designed to secure long-term source of supply for
Eskom and allow for a price averaging which will provide some short-term relief for
OCM until 2019;
a reasonable settlement of the alleged penalties which Eskom believes is has
accrued against OCM; and
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Without Prejudice: Eskom Holdings SOC Limited/ Optimum Coal Mine Proprietary
Limited and Optimum Coal Holdings Limited – Indulgence on Qualities letter dated
19 September 2015
5.190. This is a letter sent by CDH to Glencore and the BRP’s. The letter states as
follows:
“1 We refer to the meeting between Mr Clinton Ephron of Glencore, the BRP of
Optimum Coal Mine (Proprietary) Limited (“Optimum”) and the CEO of Eskom
Holdings SOC Limited (“Eskom”) on 3 September 2015.
2 We confirm that it was agreed that Optimum shall with effect from 4 September
2015 re-commence the supply of coal to the Hendrina Power Station for a period of
60 days on the following basis-
2.1 As per the Coal Supply Agreement;
2.2 coal quality of 458 333 thousand tons per month;
2.3 coal qualities in terms of the suspended 1993 Coal Supply Agreement (“CSA”)
and addenda thereto, save for the relaxation of the sizing specification as recorded
herein for convenience-
3 For the duration of the 60 days arrangement, we record that-
3.1 Eskom shall suspend the imposition of any penalties in respect of coal which
fails to meet the quality specification. In that regard the power station and Optimum
mine must continue on a daily/weekly/monthly basis to comply with all sampling and
contractual requirements as required by the suspended CSA, including to provide
Optimum with the required notices for non-compliance;
3.2 Eskom shall on a weekly-basis within three (3) days from the date of receipt of
an invoice from Optimum, make payment to Optimum for such coal supplied and
delivered to the Hendrina Power Station during the preceding seven (7) days.”
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Without Prejudice: Eskom Holdings SOC Limited/ Optimum Coal Mine Proprietary
Limited and Optimum Coal Holdings Limited – Indulgence on Qualities letter dated
22 September 2015
5.191. The BRP’s refer to the letter sent by CDH on 19 September 2015. The contents of
the letter is inter alia as follows:
c) There will be no sizing quality specification or any penalties levied during the
60 day period.
d) The BRP’s further state “We note that we do not accept that the power station
has any difficulties with coal which does not comply with the quality
specification contemplated by clause 3.4.3 of the First Addendum and we
reserve all our rights arising from the notice served by OCM on Eskom in
terms of clause 3.4.4 of the First Addendum on 23 April 2013.”
5.192. This is a letter dated 30 September 2015 addressed to OCM and the BRP’s. The
letter is in reply to the letter sent on 17 September 2015. The letter reads as
follows:
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“2 We have been instructed that Eskom SOC Limited (“our client”) has considered
your proposal and is not at this stage prepared to entertain it for , inter alia, the
following reasons-
2.1 any discussion and negotiation on the new contract price for coal to the
Hendrina Power Station will only be considered closer to 2017 and not at this stage
prior thereto:
2.2 the penalty claim is not negotiable and it should be settled in full without any
delay.
3 We record that it has come to our client’s attention that assets are being stripped
at the Optimum mine. Our client requires full details of all assets that has been
removed or stripped, and, an undertaking by no later than close of business today,
that the Business Rescue Practitioners, would immediately desist with such actions,
failing which our clients reserves the right to take the appropriate legal steps.”
5.193. This letter addressed to CDH from Werksmans is a reply to the letter from CDH
dated 30 September 2015:
“2 We are disappointed that you have made no attempt to engage with the
substance of our proposal or to make any counterproposal. Our clients are
considering how to proceed and we will revert in due course.
3 Our clients categorically reject the allegation that any asses are being stripped at
the Optimum mine. No assets have been removed from the Optimum mine except
for certain arm’s length disposals of minor assets that were surplus to requirements,
which have been approved by the joint business rescue practitioners in accordance
with section 134 of the Companies Act and the secured creditor who has taken
possession of all OCM’s movable assets.”
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Optimum Coal Mine (Pty) Ltd – Non-Binding Offer letter dated 7 October 2015
5.194. This is a letter dated 7 October 2015 from the BRP’s to Oakbay. They refer to a
letter dated 21 September 2015 and subsequent meeting held on 29 September
2015 regarding the offer to purchase OCM.
5.195. The BRP’s inform Oakbay that they have received another offer from a third party
which offers more favourable terms. The BRP’s state that the third party has
requested OCM to engage exclusively with them and OCM are thus no longer able
to engage Oakbay with regards to their offer.
Optimum Coal Mine (Pty) Ltd – Non-Binding Offer letter dated 23 October 2015
5.196. This letter is addressed to Oakbay from OCM and the BRP’s dated 23 October
2015.
5.197. The BRP’s refer to a meeting held on 20 October 2015 in which the offer to
purchase OCM was discussed.
5.198. The BRP’s confirm that they are now willing to proceed with the transaction with
Oakbay on condition that a few requirements are adhered to.
5.199. The BRP’s make it clear in this letter that only OCM is for sale.
Optimum Coal Mine (Pty) Ltd (In Business Rescue) : Options letter dated 29
October 2015
5.200. This is a letter from OCM addressed to Mr Matshela Koko at Eskom. The letter
makes reference to a meeting held at Eskom on 28 October 2015 and highlights
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the various options discussed during the meeting. The contents of the letter is inter
alia as follows:
a) Option 1- This entails a sale of OCM to a third party. This however would
prove difficult due to the debt owed by OCM to the consortium of banks. The
BRP’s state that they have been approached by Oakbay to purchase the
assets of OCM. The BRP’s further state that they have limited time to explore
this option due to the R 120 million worth of funding required to operate OCM
and supply Eskom on a monthly basis.
c) Option 3- This entails a sale to a third party on condition that new terms can
be agreed with Eskom.
Optimum Coal Mine (Pty) Ltd (In Business Rescue) : Options letter dated 3
November 2015
5.201. This is a letter from the BRPs to Eskom dated 3 November 2015.
5.202. The BRPs confirm that the publication of the business rescue plan has been
extended to 29 February 2016.
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5.203. The BRP’s also state that they have not been able to develop a plan to ensure
coal supply to Eskom on the current CSA. The BRP’s state that if they do not
develop a viable plan that would have to consider the option of liquidating OCM.
Optimum Coal Mine (Pty) Ltd (In Business Rescue) : Options letter dated 5
November 2015
5.204. Letter from Mr Matshela Koko of Eskom to OCM dated 5 November 2015. The
contents of the letter is inter alia as follows:
“3. It is with grave concern that Eskom notes the continuous threat of liquidation at
the same time as you are seeking constructive engagement between the parties. As
a Glencore operation, OCM should enjoy far more than conditional funding for
limited time periods. There appears to be no concerted commitment on the part of
OCM and its operations to meaningfully engage on the issues without resorting to
veiled threats of discontinuation of supply and recently, liquidation. I would request
you desist from these types of tactics with immediate effect.
7. As matters stand currently, Eskom may be compelled to seek intervention from
such institutions such as the Tribunal, the Department of Mineral Resources and
service providers to ensure meaningful engagement with OCM. It may also be an
appropriate time for Eskom to review the engagement with Glencore from a portfolio
perspective.
8. Your earlier correspondence indicated possible options, one of which was the
sale of Optimum to third parties. We note that you have an offer on the table.
Eskom is happy to engage in a roundtable discussion with the interested party and
yourselves to establish the veracity of the offer. You have repeatedly emphasized
the limited time available to explore such options and Eskom would be willing to
enter in such discussions provided that it aims to find a solution.”
Optimum Coal Mine (Pty) Ltd (In Business Rescue) : Options letter dated 13
November 2015
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5.205. This is a letter from the BRP’s to Eskom dated 13 November 2015 and is in
response to the Eskom letter dated 5 November 2015. The contents of the letter is
inter alia as follows:
a) The BRP’s acknowledge and state that they are aware as to how important it
is that coal supply to Hendrina Power Station is maintained and is the very
reason why the BRP’s have engaged with Eskom in order to find a solution to
the coal supply agreement.
b) The BRP’s state that Oakbay has begun the due diligence process on OCM.
The BRP’s state that they are hopeful of concluding a transaction with Oakbay
with the consent of Eskom.
5.206. The above mentioned document is the minutes of a meeting held between Eskom,
OCM and Oakbay which took place on 24 November 2015. Mr Matshela Koko of
Eskom chaired the meeting. The details of the meeting are as follows:
a) The purpose of the meeting was to seek the support of Eskom for the sale of
OCM to Oakbay.
b) Oakbay confirmed that due diligence had begun and that they hope that an
agreement will be in place on 15 November 2015.
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PM indicated that the BRP’s view of the claim differed to that of Eskom. In
addition, there was a ZAR 2.7bn of senior secured bank debt held by the banking
consortium which will need to be evaluated by Oakbay. The BRP has had open
discussions with Oakbay on this debt. PM confirmed that there was no
engagement around OCH solution and from a Glencore perspective, it may be
open to this but at the moment Oakbay was dealing with the transaction from an
OCM perspective.
NH confirmed that Oakbay was dealing with it from and OCM perspective and that
it did not have a mandate to talk regarding OCH.
It was concluded that the Eskom position was now clear to all parties and that
Oakbay required a mandate to take the discussion further. NH requested to
reconvene with the Business Rescue Practitioner and Glencore at 17h30 to
discuss further. The Chairman reiterated that the parties would not have Eskom
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5.207. This was the purchase agreement for the sale of all shares held in OCH to Tegeta
signed on 10 December 2015.
5.208. The whole agreement was subject to certain suspensive conditions being met.
Clause 3 of the agreement deals with the suspensive conditions. The transaction
needed to be approved by the following individuals/entities before 31 March 2016:
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3.1.4.3 release by Eskom of the Seller and its past and current Affiliates (other than
the Target Companies), with effect from the Closing Date, from all actions, claims,
counterclaims, causes of action, debts, obligations, damages, liabilities, rights and
demands whatsoever, of whatever kind or nature, in contract or in delict, known or
unknown, which Eskom now has or ever had against the Seller and its past and
current Affiliates that are and/or may be based upon, arise under, or be related to
the CSA, prior to and including the Closing Date.”
5.210. The total amounts available as at 31 January 2016 in the Optimum Mine
Rehabilitation Trust and Koornfontein Rehabilitation Trust is R 1,750,000,000.00
(1 billion and seven hundred and fifty million).
a) The agreement in essentially states that Tegeta will provide Post Commencing
Finance (“PCF”) for operating expenses of OCM.
b) The agreement states that the BRP’s by way of written notice, can request
financing from Tegeta in order to fund its cash requirements.
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5.213. Pembani states that they attempted to conclude a similar transaction, in that they
would acquire 100% shareholding in OCM subject to the approval of Eskom and
the Department of Mineral Resources.
5.214. Pembani states that “Eskom was not prepared to amend the OCM coal supply
agreement (“CSA”) or waive its rights to enforce the claim under the CSA, which
led to the Pembani transaction failing”.
5.215. Pembani further states “that we are concerned about developments that led to the
conclusion of the Tegeta Transaction and the failure of the Pembani transaction.”
5.216. This is a letter addressed to Tegeta dated 13 January 2016 from OCM and the
BRP’s and signed by the BRP’s on 14 January 2016. They formally request an
amount of R 26,000,000.00 (Twenty six million rand) on 15 January 2016 in terms
of the PCF agreement which is in place.
5.217. This is a letter addressed to Tegeta dated 10 February 2016 from OCM and the
BRP’s and signed by the BRP’s on 10 February 2016. They formally request an
amount of R 23,000,000.00 (Twenty three million rand) on 15 February 2016 in
terms of the PCF agreement which is in place.
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5.218. This is a contract between Tegeta and OCM signed on 13 January 2016 for the
supply steam coal by OCM to Tegeta.
5.219. The contract is for 100 000 tons at a rate of R18.68/GJ on a gross as received
basis plus R60.00 per ton for delivery. This price is exclusive of VAT. Invoicing will
be done after every 25 000 tons is delivered.
5.222. Tegeta refers to a discussion which was had between Eskom and Tegeta. Tegeta
now offers to supply Eskom with 250 000 tonnes of coal per month for a 3 month
period starting on 1 February 2016.
5.223. The coal will be supplied at a rate of R22.00/GJ exclusive of VAT plus
transportation costs on based on Eskom’s scale.
Re: Selection of Tegeta Exploration and Resources Proprietary Limited letter dated
9 February 2016
5.224. This is a letter sent by the BRP’s to Eskom dated 9 February 2016.
5.225. The letter makes reference to the meeting held on 24 November 2015 which was
chaired by Mr Matshela Koko, where “he raised concerns around the sustainability
of Optimum Coal Mine (“OCM”) as a standalone business. You further question
how OCM could survive without the contribution from Koornfontein Mines
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Proprietary Limited (“Koornfontein”) and the export allocation. You further stated
Eskom’s position around the need for the continuity of coal supply with particular
reference to the existing OCM coal supply agreement”
5.226. The letter states that three requirements that need to be satisfied by Tegeta in
order for the sale to go through, relates to Eskom. These requirements are as
follows:
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5.228. This submission made to the Board Tender Committee was sgined by Mr Vusi
Mboweni (Senior General Manager: Primary Energy), Mr Neo Tsholanku (General
Manager: Legal) and Mr Matshela Koko (Group Executive: Generation).
5.229. The purpose of this submission was to consent to the cession of the CSA between
OCH and Eskom to Tegeta and Eskom.
5.230. The document states that a risk has been identified in Tegeta’s possible inability to
pay the penalties levied by Eskom to OCH/OCM.
Board Tender Committee Meeting (08/2015) held on 10 February 2016 in the Huvo
Nkulu Boardroom at 09:00
5.231. Board Members present during this meeting were Mr Z. Khoza (Chairman of the
meeting), Ms C. Mabude, Ms D Naidoo and Ms N Carrim.
5.232. At this meeting a recommendation was made “to enter into the cession and
assignment of the coal supply agreement between Optimum Coal Holdings (Pty)
Ltd (OCH) and Eskom Holdings SOC Ltd (Eskom) from Glencore Operation South
Africa (Pty) Ltd (Glencore) to Tegeta Exploration and Resources (Pty) Ltd
(Tegeta).
d) Cession is granted on the basis that all requirements in terms of the purchase
agreement has been met.
5.235. This is a contract between Tegeta and OCM signed on 18 February 2016 for the
supply steam coal by OCM to Tegeta.
5.236. The contract is for 400,000 tons of coal for the period February 2016 to April 2016
at a rate of R18.68/GJ plus the negotiated transport rate. The price is exclusive of
VAT. Invoicing will be done after every 50 000 tons of coal is delivered.
Minutes of the Special Board Tender Committee Meeting 09/2015/16 held at the
Huvo Nkulu Boardroom on 7 March 2016 at 18h00
5.238. Board Members present during this meeting were Mr Z. Khoza (Chairman of the
meeting), Ms C. Mabude, Ms D Naidoo and Ms N Carrim.
5.239. Ms D. Naidoo declared that her husband is an advisor to the Minister of Mineral
Resources. It was agreed that there would be no conflict regarding the agenda at
hand and Ms D. Naidoo was allowed to participate in the meeting.
5.240. This document signed 30 March 2016 essentially confirms that all suspensive
conditions have been fulfilled in terms of the agreement signed 10 December.
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5.241. The following documents should be noted with regard to the approvals obtained by
Tegeta:
5.242. This agreement was signed on 8 April 2016 and further confirms that all
suspensive conditions have been met and that the sale in unconditional.
5.243. Clause 2.1.4 of the agreement also states that Tegeta has obtained “the
irrevocable and unconditional-
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2.1.4.1 consent of Eskom to the sale and purchase of the Sale Equity;
2.1.4.2 release by Eskom of the Eskom Guarantee; and
2.1.4.3 release by Eskom of OCH and its past and current Affiliates (other than the
Target Companies), with effect from the Closing Date, from all actions, claims,
counterclaims, causes of action, debts, obligations, damages, liabilities, rights and
demands whatsoever, of whatever kind or nature, in contract or in delict, known or
unknown, which Eskom has now has or ever had against OCH and its past and
current Affiliates that are and/or may be based upon, arise under, or be related to
the CSA, prior to and including the Closing Date”
5.244. The Fourth Addendum was concluded for the purposes of ceding OCH with
Tegeta with regards to the CSA as well as any other obligations towards Eskom.
The Fourth Addendum was signed on 30 March 2016.
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3.1.1 Eskom hereby consents to the cession and assignment of all rights and
obligations of OCH in terms of the CSA to Tegeta in terms of clause 29 of the CSA.
3.1.2 OCH is substituted by Tegeta as the contracting party with OCM to the CSA to
ensure compliance with all and any obligations towards Eskom in terms of the CSA,
including all actions, claims, counterclaims, causes of action, debts, obligations,
damages, liabilities, rights and demands whatsoever, of whatever kind or nature, in
contract or in delict, known or unknown which Eskom now has or ever had against
OCH that are and/or may be based upon, arise under, or be released to the CSA
and/or Eskom Guarantee (including (but not limited to), for the avoidance of any
doubt, the Penalties Claim.”
Release – Optimum Coal Holdings Proprietary Limited and Affiliates letter dated 30
March 2016
5.247. This letter from Eskom dated 30 March 2016 addressed to OCH and the BRP’s. In
the letter Eskom essentially consents to the cession of the CSA to Tegeta. The
letter is signed by Mr V. Mboweni as well as by the BRP’s.
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alleges to have, amongst others, against OCH and for which it has instituted
proceedings against OCH out of the High Court of South Africa, Gauteng Local
Division, Johannesburg, under case number 28155/15 (“Penalties Claim”)), prior to
and including the Effective date.”
Notice to Affected Persons Regarding the Publication of the Business Rescue Plan
in Terms of Section 150(5) of the Companies Act 71 of 2008 in Respect of the
Business Rescue Proceedings of Optimum Coal Holdings Proprietary Limited (In
Business Rescue) letter dated 31 March 2016
5.249. This letter is a notice from the BRP’s of OCH to affected persons stating that the
business rescue plan is published and the affected persons are hereby directed to
vote for the adoption of the business plan.
Offer to supply additional coal to Eskom Optimum Coal Mine (Pty) Ltd dated 11
April 2016
5.250. This is a letter sent from Tegeta to Eskom dated 11 April 2016. The letter states as
follows:
“Kindly refer to the negotiations we had in the captioned matter. In this connection
Tegeta Exploration and Resources (Pty) Ltd (Tegeta) is ready to supply Eskom an
additional 1,250,000 (one million and two hundred fifty thousand) tonnes of coal
from the Optimum Coal Mine (Pty) Ltd (OCM) over a period of 5 months at a rate
of R20.41 (Rand twenty and cents forty one) per gigajoule plus VAT less 3.5%
discount.
In case our request is considered favourably we are ready to sign the agreement
in this regard.”
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5.251. This was a submission prepared for the Board Tender Committee with regards to
the approval of the pre-payment.
5.252. This submission required the following resolution from the Board:
2.1 Addenda to the Short Term Coal Supply Agreements between various
suppliers and Eskom be concluded to extend the supply of coal from various
sources to Arnot Power Station for up to a further five (5) months and/or such
period as may be requested by the supplier but not later than 20 September
2016;
2.2 The Chief Financial Officer is hereby authorised to approve the basis for
prepayment to secure the fixed coal price for the period of extension provided
that there is a discount in the price, the supplier offers a guarantee in favour of
Eskom and that the CFO can provide assurance to the committee that the
transactions are economically viable for Eskom;
2.3 The Group Executive (Generation) is hereby authorised to take all the
necessary steps to give effect to the above, including the signing of any
consents, or any other documentation necessary or related thereto.”
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At present, this RFP is in the negotiation phase and it is anticipated that it will take
up to a maximum period of 5 (five) months to conclude the supply contracts.
The current short term portfolio consists of two suppliers, namely Umsimbiihi
Mining Pty (Ltd) and Tegeta Exploration and Resources (Pty) Ltd.
Umsimbithi is contracted to supply Amot with 540 000 tonnes and is currently
underperforming due to protracted Industrial action. The current contract supply
will then be depleted in and around June 2016, should the Industrial action be
stemmed and full mining operations resume. The supplier indicated a willingness
to extend from July 2016 until September 2016 on similar terms and conditions.
Tegeta's short term contracts are for 600 000 tonnes of coal from Optimum's
export. Supply for these contracts is due to be completed by the 15 April 2016.
The coal from Optimum's export stock is a higher grade coal that is suitable for
Amot and Kriel Power Stations and is difficult to source from elsewhere.
These contracts were entered into in terms of the Medium Term Mandate granted
by the Board Tender Committee (BTCI 11 September 200. The BTC approved a
mandate to negotiate and conclude CSAs on a medium term basis for the supply
and delivery of coal to various Eskom Power Stations for the period October 2008
to March 2018 and this included the beneficiation of coal by suppliers or their
contractors.
The benefits for extending these Short Term Contracts Include:
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By procuring this coal for Amot and Kriel Power Stations, it will assist towards
building stock days as according to the April 2016 Supply Plan, as presented at
the Primary Energy TCC of 8 April 2016 there is currently an estimated 2.14Mt
tonnes shortfall at Amot Power Station for FY2017 and 280 000 tonnes shortfall
at Mel Power Station for FY2017.
5.254. The document states that the cost of the Tegeta prepayment for the next 5 months
will be approximately R 586,787,500.00.
5.255. This document is approved and signed on 11 April 2016 by Ms Ayanda Nteta, Mr
Edwin Mabelane and Mr Matshela Koko.
Extract from the approved minutes of the Special Board Tender Committee 1-
2016/17 held by Teleconference on 11 April 2016 at 21h00
5.256. This was a Special Board Tender Committee meeting held on 11 April 2016 at
21h00. The purpose of the meeting was to approve short term coal supply
agreements.
2.1.2 The Chief Financial Officer is hereby authorised to approve the basis for
prepayment to secure the fixed coal price for the period of extension
provided that there is a discount in the price, the supplier offers a guarantee
in favour of Eskom and that the CFO can provide assurance to the
committee that the transactions are economically viable for Eskom;
2.1.3 The Group Executive (Generation) is hereby authorised to take all the
necessary steps to give effect to the above, including the signing of any
consents, or any other documentation necessary or related thereto.”
Extract from the minutes of the Meetings of Shareholders of Tegeta Exploration and
Resources Pty Ltd (Registration No. 2006/014492/07) (The Company) Held at
Sandton on 13/04/2016
5.258. This is a document signed by all the shareholders of Tegeta in which they pledged
all shares to Eskom as security for the prepayment. The shareholders are listed
as:
a) Oakbay Investments Pty Ltd;
b) Mabengela Investments Pty Ltd;
c) Elgasolve Pty Ltd;
d) Fidelity Enterprise Ltd; and
e) Accurate Investments Ltd.
Agreement Regarding Coal Supply and Limited Guarantee and Cession and Pledge in
Security signed 13 April 2016
5.259. This is the agreement was signed on 13 April 2016 between Eskom and Tegeta
with regards to the prepayment which was made.
5.260. Clause 4.1 of the agreement reads as follows: “Eskom will make an advanced
payment to Tegeta in lieu of future coal supply in terms of the Existing Coal Supply
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Agreement in the amount of R 659 558 079.00 (six hundred and fifty nine million
five hundred and fifty eight thousand seventy nine rand and 38 cents) inclusive of
VAT (“Advance Payment) payable on 13 April 2016.”
5.261. Clause 4.2.1 states as follows: “Tegeta will procure that for supply to Eskom from
the Optimum mine in terms of the Existing Coal Supply Agreement, for the 5
month period commencing on 16th April 2016 to 30 September 2016, a 3.5%
discount shall be applied to the agreed price of R20.41 (twenty rand and forty
cents) per Gigajoule. Accordingly the price payable for the supply from the OCM
mine shall be R 19.69 (nineteen rand and sixty nine cents) per Gigajoule.”
5.262. The document was signed by Mr Matshela Koko on behalf Eskom and Mr
Ravindra Nath on behalf of Tegeta.
5.263. This is a contract between Tegeta and OCM dated 21 April 2016 for the supply
steam coal by OCM to Tegeta.
5.264. The contract is for 250,000 tons of coal per month for the period May 2016 to
October 2016 at a rate of R18.68/GJ plus the negotiated transport rate. The price
is exclusive of VAT.
5.265. Invoicing will be submitted by OCM to Tegeta “within the first week of each month
detailing the coal supplied in the preceding month.” Payment of each invoice will
be made 30 calendar days from statement.
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5.266. This letter is from the BRP’s to all affected persons dated 19 April 2016. The letter
confirms that the business rescue plan has been adopted and the business rescue
proceedings of OCH has been concluded.
Optimum Coal Mine Proprietary Limited (In Business Rescue) letter dated 24 April
2016
5.267. This letter is sent by Werksmans on behalf of the BRP’s to Tegeta on 24 April
2016. The contents of the letter is inter alia:
a) The letter reiterates to Tegeta that all actions taken by the OCM board must
be done with the written consent of the BRP’s failing which such actions will
be deemed void in terms of section 137(4) of the Companies Act.
b) All decisions with regards to the environmental trust and the investment
thereof should be taken with the consent of the BRP’s.
c) The letter states that Ms Ragavan, attempted to transact with Standard Bank
with regards to the environmental trust. The BRP’s further state that Ms
Ragavan has no authority to transact on behalf of the trust as this power is
vested in the trustees of the trust and subject to their fiduciary obligations to
the trust.
d) The BRP’s expressly stated in the letter that consent is needed from them
before transactions of such a nature can be concluded.
e) The letter further states that “OCM is under a legislative obligation to maintain
sufficient funds in the trusts account to meet rehabilitation obligations of the
company under regulation 53 and 54 of the Mineral and Petroleum Resources
Development Act 28 of 2002 (“MRPDA”) and under section 24P of the
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f) The letter concludes in saying that “any contravention of the sections of the
MPRDA and NEMA described above is a criminal offence under section 98 of
the MPRDA and in terms of regulation 18 of the NEMA regulations
promulgated on 20 November 2015 and may result in a find and/or
imprisonment in addition to any civil remedies that may be available to the
business rescue practitioners, OCM and/or its affected persons.”
Minutes of the Eskom Board Tender Committee Meeting 03-2016/17 held at the
Huvo Nkulu Boardroom on 21 June 2016 at 09h00
5.268. Board Members present during this meeting were Mr Z. Khoza (Chairman of the
meeting), Ms C. Mabude and Ms D Naidoo.
5.270. The committee approved that contracts can be negotiated for supply of coal to
Hendrina power station from 31 December 2018 onwards.
5.271. The following report was received at the Directorate for Priority Crime Investigation
(“DPCI”) on 1 July 2016 and was drafted by the BRP’s. The BRP’s:
“1 We were appointed on 4 August 2015 by the Companies and Intellectual
Property Commission (“CIPC”) as the joint business rescue practitioners of
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2 OCH was discharged from business rescue on 15 April 2016. A copy of form
CoR125.3 stamped by the CIPC is enclosed marked A. OCM is still in
business rescue.
5 At the time of our appointment as BRPs, OCH was the majority shareholder
of OCM and Glencore was the ultimate beneficial majority shareholder of
OCH.
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9 In terms of the Sale Agreement, Tegeta was required, among other things, to
make payment of the purchase price, in the amount of approximately R2.15
billion (“Purchase Price”) for the Target Shares and Claims.
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13 At such meeting, Marsden was advised by Howa that Tegeta was R600
million short in respect of the Purchase Price and requested Marsden to
approach FirstRand Bank Limited (acting through its Rand Merchant Bank
division), Investec Bank Limited (acting through its Corporate and Institutional
Banking division) and Nedbank Limited (acting through its Corporate and
Investment Banking division) (“Consortium of Banks”), to request a bridging
loan in the amount of R600 million, to finance the shortfall on the Purchase
Price. The Consortium of Banks were pre-existing lenders and the major
creditor of OCH.
16 On 14 April 2016 the Escrow agent confirmed to us that the payment of the
Purchase Price was made in full to the Escrow Agent’s account.
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18 We viewed the Episodes and Interview in the week of 20 June 2016 and we
viewed the Articles.
19 Pursuant to the Episode, Interview and Articles, we learned, for the first time
that –
19.1 Eskom had made a pre-payment to Tegeta, for the purchase of coal
from Tegeta, in an amount of R586 million (“Pre-Payment”); and
19.2 the coal for which the Pre-Payment was made by Eskom appears to
have been, or is to be, procured from OCM for Tegeta, and delivered by
OCM to Eskom’s Arnot Power Station.
20 We have come to learn from the Episodes, Interview and Articles that the
Pre-Payment was approved by a committee of Eskom representatives at a
meeting held at 21h00 on 11 April 2016. This meeting was held on the same
day on which the request for the bridging finance was made to, and rejected
by, the Consortium of Banks.
21 Pursuant to the Interview, Howa remarked that the Pre-Payment had been
made on the basis that OCM was in business rescue and required money for
its liquidity and for the start-up of equipment.
22 We confirm that the Pre-Payment was not made to OCM and that OCM
provides a 30-day payment term to Tegeta for the delivery of coal, on behalf
of Tegeta, to the Arnot Power Station.
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Optimum Coal Mine Proprietary Limited (In Business Rescue) letter dated 13 July
2016
5.272. This letter is dated 13 July 2016 from OCM and the BRP’s to Tegeta. The letter
states as follows:
“As you aware, Optimum Coal Mine Proprietary Limited (In Business Rescue)
(“OCM”) is still in business rescue and under the management and control of the
business rescue practitioners.
As the joint business rescue practitioners of OCM you are aware that we have
access to the bank accounts of OCM.
It has come to our attention that an amount of R90 000 000 was transferred to
Tegeta Resources and Exploration Proprietary Limited (“Tegeta”).
The transfer made from OCM to Tegeta was not authorised by either of the
practitioners. Werksmans addressed a letter to you, on our behalf, dated 19 April
2016 wherein it was stated (and in particular in paragraph 7.2 thereof), that inter-
company payments require the authorisation of the business rescue practitioners.
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As you are aware from our previous correspondence, all actions taken by the board
and management of OCM require the prior written consent of the business rescue
practitioners, failing which such actions will, in accordance with section 137(4) of the
Companies Act 71 of 2008, as amended (“Companies Act”), be deemed to be void.
The transfer of the funds to Tegeta required our authorisation which authorisation
was not procured, and as such, such transaction is accordingly void.
We take this opportunity to further advise you that we are dissatisfied with the
manner in which various inter-company transactions have been reflected in the
records of OCM. OCM has, since about 9 April 2016, been supplying coal to Tegeta
on 30 day payment terms (“Tegeta Coal”) and Tegeta has, been providing post-
commencement finance (“PCF”) to OCM on an ad hoc basis.
We requested that the payments that were made in respect of the Tegeta Coal and
PCF be kept and recorded as distinct in the books and records of OCM, which has
not occurred.
However, for your benefit, we have prepared a reconciliation of the net amount
(which includes the R 90 000 000 referred to aforesaid) that we believe is payable
by Tegeta to OCM.
In the circumstances, we are instructed to advise you that the amount of R 43 492
349 is to be transferred forthwith into the bank of account of OCM, failing which our
clients may need to seek legal redress for the transfer of such amount.
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In addition to the R43 492 349 which is currently due and payable, you should be
mindful that the payment for Tegeta Coal supplied to Tegeta by OCM in the month
of June to the amount of R 148 027 783.91 will become payable on 31 July 2016.”
Optimum Coal Mine Proprietary Limited (In Business Rescue) letter dated 23
August 2016
5.273. This is a letter from the BRP’s to Tegeta in which the BRP’s state that an amount
of R 289,842,376.oo is due and payable by 31 August 2016. A recon is further
attached to said email detailing the amount owed.
5.274. On 24 August 2016, the BRP’s sent an email with subject “Urgent Meeting” to Mr
Howa and Ms Ragavan. The email inter alia states as follows:
a) The BRP’s needs assistance in order for the business rescue of OCM to be
discharged.
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5.275. This is an email sent detailing the amounts owned to OCM by Tegeta. As per the
recon attached to said email Tegeta owes OCM and amount of R289,842,376.00
as at July 2016.
5.278. The document finds the all correct due processes were followed and all relevant
policies and procedures were followed correctly.
5.280. The following media statement was on 11 June 2016 and was found on the Eskom
website. The statement stated as follows:
“Exxaro Arnot Colliery had a contract with Eskom to supply coal to Arnot Power
Station for 40 years. This contract expired in December 2015. The cost of coal at
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expiry was R1132/ton. The tonnages supplied under the contract were below
contractual volumes necessitating Eskom to supplement the supply with other
contracts to mitigate security of supply which was a continuous challenge. In
anticipation of the expiry of the contract, a Request for Proposal (RFP) was issued
to the market in August 2015. This RFP is currently under evaluation and is
expected to be awarded by September 2016. It should be noted that Tegeta has
not responded to this RFP.
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11. Eskom concluded a contract with Tegeta to supply 1 250 000 tons of coal from
April to September 2016 and have approval to extend the contract with
Umsimbithi to supply 540 000 tons from June to September 2016. These two
contracts in our view sufficiently address the winter shortfall and security of
supply risk relating to coal procurement.
12. The cost of coal from Tegeta was R19.70/GJ and the cost from Umsimbithi
was R18.50/GJ, the price difference being explained by the higher rejection
level requirement for Tegeta. In both instances we would like to point out that
the cost is far lower than the cost of approximately R51/GJ from the original
Exxaro Arnot colliery that expired in December 2015.
13. The Tegeta prepayment request was considered on its merits, the current
security of supply risk circumstance and previous transactions of a similar
nature which is discussed below.
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19. Prepayment is a common commercial practice that is used widely and not
unique to Eskom contracts. It is used in in large projects, coal mining contracts
and emergency supply contracts. The first Eskom coal emergency arose is
2008 after load shedding due to constrained coal supply conditions.
20. During the 2008 emergency, Eskom Board approved advance payments to the
value of R400M to enable suppliers to undertake projects needed to supply
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coal. To this end, Eskom concluded a coal processing contract with Isambane
(Pty) Ltd with prepayment terms. Three loans were granted to Isambane.
Isambane was then required over a period of time to conduct beneficiation and
stockpiling services. The agreement was that Isambane would perform these
services and eventually pay off the prepayment.
21. Furthermore, a prepayment in the form of a loan was provided to Liketh in
2008 to buy equipment to process coal from Kleinkopje Pit 5 West. The loan
was recovered in 12 consecutive instalments from 1 March 2008.
22. Eskom has also entered into loan agreements to assist Rand Mines for capital
expenditure. The first loan was payable over a period of 20 years until 31
December 2013. The second loan was in 1998, and it will be paid in full by
December 2017. Eskom also assisted another Rand Mines operation with a
loan for bridging finance. This loan is paid up.
23. In costplus mine contracts, Eskom prepaid the mines to start up the mining
operations. It subsequently pays for the operating costs and a management
fee. In return Eskom receives security of supply at the right qualities and
volumes. The cost plus mines future investment/prepayment capital
requirement is R38bn. The beneficiaries of the R38bn are Anglo, Exxaro and
South 32 (formerly BHP Billiton). This upfront payment is in line with the
agreed 40 year long term contracts.
24. In October 2015, Exxaro requested full funding of its Matla costplus operation
capital requirement. The estimated cost requested by Exxaro is R1.8bn for the
establishment of a new mining shaft.
25. Eskom continues to measure and monitor the coal qualities from all its
suppliers. Tegeta coal qualities are monitored in accordance with Eskom’s
Coal Quality Management Procedure. This includes Tegeta Brakfontein
Colliery and Optimum Coal Mine. The Brakfontein colliery is dedicated to
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Majuba and it meets Eskom’s coal quality requirements. This coal, like any
other, is periodically diverted on a short term basis to alternative Power
Stations to meet minimum coal stock requirements.
26. The Optimum Coal Mine provides two coal qualities to Eskom. The Optimum –
Hendrina supply is a blended product of run-of-mine and washed product. This
is supplied under the existing Optimum-Hendrina contract that expires in 2018.
27. The second product from Optimum from their export mining compound. It is a
higher quality coal and this is supplied to Arnot under the current short term
agreement.
28. It should be noted that Eskom has a claim against Optimum for R2bn relating
to out of specification coal delivered. Eskom has vigorously pursued this claim
with the previous owners of Optimum, registered its rights with the business
rescue practitioners and also indicated its intention with the new owners of
Optimum being Tegeta that Eskom will be pursuing this claim.
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30. Eskom continues to engage the industry on coal quality, as well as coal
pricing, in order to ensure receipt of an optimal coal product at the right price.
To this end, current coal contracting discussions are aligning coal pricing and
escalations in line with Nersa coal cost determinants. Commercial decisions
that consider security of supply, risks associated with coal costs, and optimal
cost of coal continue to be balanced, ensuring that the optimal decisions are in
the interests of Eskom and the South African consumer.”
a) Eskom previously bought coal R1132 from Exxaro for the Arnot Power Station.
Tegeta’s supplies coal at half the price to Arnot Power Station.
c) Tegeta was approached to increase to 350 000 tons of coal per month.
d) Tegeta/OCM needed the prepayment for the Arnot deal. “It was an extra
ordinary request from us”.
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a) Roll over the debt for the period committed for and keep all securities
in place.
b) Second was Tegeta will put in a R1 billion in cash, roll over the rest
and the Loan Consortium keep securities in place over OCM. The
Loan Consortium would in addition, take the Eskom payment directly
and Tegeta would not see any of the Eskom money.
h) We paid for the mine with a mixture of debt and our own funding.
i) Proof of payment for the mine was required December (Tegeta needed to
show funding)
j) The Loan Consortium would not of accepted if they did not have the funding in
place.
l) Some of the reasons given by Mr Howa for the prepayment were as follows;
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o) Eskom still pays on a weekly basis due to OCM being in business rescue.
p) Mr Howa stated that OCM are in Business rescue and therefore special
conditions exist for us.
a) “If you look at the history of the penalty claim, Glencore wanted to fight the
penalty, we will also fight it.
c) I met with the BRP. The penalty claim if anything should be significantly lower.
d) Tegeta will take their chances with arbitration over the penalty claim.
Response To The List Of Questions For Ayanda Nteta In Re Investigation Into Complaints
Of Improper And Unethical Conduct By The President And Officials Of State Organs Due To
Their Alleged Inappropriate Relationship With Members Of The Gupta Family
5.282. I posed a number of questions to Ms Ayanda Nteta (‘Ms Nteta”) who is the acting
General Manager for Fuel Sourcing at Eskom. Ms Nteta was involved during the
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processes of sourcing coal for Arnot Power and the awarding of contracts to
Tegeta. The ensuing paragraphs will detail her response, as is, to said questions:
“6. The shortage of coal led to Eskom declaring emergencies in 2008 and 2015.
In 2008 it became clear that Eskom had to develop strategies to enter into coal
supply contracts that will ideally cover the balance of the estimated shortfall
volume of coal required until March 2018. There were inherent difficulties in
embarking on long term procurement strategies that were as a result inter alia
of the timing constraints of the negotiating period and mine establishment.
7. Short to medium procurement was identified as being the best suitable option
in light of the fact that Eskom at all times had to ensure that the burn
requirements of its power stations were met. This was vital in order to maintain
and ensure the acceptable stockpile levels for the required days and the burn
rate of the power stations, all in the plight, to ensure security of electricity
supply.
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10. Eskom has developed such a procurement and provisioning system. The
applicable SCM Policies (both current and replaced) that are necessary to
understand the background of the procurement processes under investigation
by the Public Protector are the following:
10.1 Eskom’s Procurement and Supply Chain Management Procedure 32-
188 effective from 1 December 2006;
10.2 Eskom Short Term Emergency Coal Procedure GGP 1194 effective
from dated April 2004;
10.3 Eskom’s Procurement and Supply Chain Management Procedure 32-
1034; and
10.4 The Medium Term Coal Procurement Mandate of August 2008.
11. SCM Policy 32-188 and GGP 1194 was replaced by SCM 32-1034, save to
the extent that the Medium Term Coal Procurement Mandate of August 2008
adopted in accordance with SCM Policy 32-188 remains valid until March
2018.
12. As with SCM Policy 32-188, SCM Policy 32-1034 made provision for
emergency procurement and ratification. They define a procurement
emergency as a situation that may give rise inter alia to the treat of
interruptions in the supply of electricity to customers or to load loss.
13. SCM 32-1034 makes provision for a negotiation process without prior
tendering with the following parameters:
13.1 The criteria for the use of this type of procurement method;
13.2 The process to be followed which includes the preparation of a mandate
to be approved by the approval authority;
13.3 The negotiation team;
13.4 The table of delegations of authority and signing authorities; and
13.5 The prescribed templates.
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14. The Short Term Emergency Coal Procedure GGP 1194 explains an
emergency as a risk to generation of electricity due to coal shortages which
may include the following situations:
15. The Short Term Emergency Coal Procedure GGP 1194 was replaced by
emergency process set-out in SCM 32-1034. The emergency coal
procurement process has evolved since it was last adopted. Eskom relies on
coal stock at power stations to minimize risks (of interruptions in the supply of
electricity to customers or load loss) hence the emergency situation on coal is
not likely to give rise to an interruption within 24 hours as envisaged un the
Procurement and Supply Chain Management Procedure 32-1034.
16. The coal supply emergency situation for a power station meant that, if coal is
not secured immediately the coal stock would be depleted before additional
coal is delivered if it is to be secured using normal procurement process via
one of the acceptable procurement methods or sourcing mechanisms.
17. The imminence of the emergency is therefore at least within the period
equivalent to the coal stock available i.e. within the period of power station’s
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existing coal stock days held or if there is reasonable cause to believe that the
national key point is at risk. Therefore, in executing the emergency coal
procurement there is a need to consider this time limit and the coal supply
value chain.
A new process is being developed to better deal with coal emergency. Based
on the emergencies Eskom has experienced in respect of two incidents cited
above, but not limited thereto, the following procedures have been followed in
line with emergency procurement process for coal:
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18. In terms of this mandate the Primary Energy Department can negotiate and
conclude contracts with suppliers on a medium term basis for the supply and
delivery of coal to various Eskom power stations for the period of October
2008 to March 2018.
19. On 27 July 2008, the relevant authority from the Primary Energy Division
(PED) prepared a request to obtain a mandate to negotiate and conclude
contracts on a medium term basis for the supply and delivery of coal supplies
of 490,8 MT to meet burn requirements at various Eskom power stations for
the period October 2008 to March 2018. The PED developed a long-term coal
supply strategy which addressed the burn requirements to mitigate the
occurrence of an emergency in the future by entering into long term contracts.
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20.1 “To negotiate and conclude medium term coal supply and delivery
contracts of 490,8 MT to meet coal burn requirements for the period
October 2008 to March 2018.
20.2 The maximum value of the proposed contract will be R164 418 M (real
base, excluding CPA, VAT, fuel price adjustment and quality price
adjustments).
20.3 The Chief Officer (Generation Business) is authorised, with the power to
delegate further, to take all the necessary steps to give effect to the
above, including the signing of any agreements, consents or other
documentation necessary or related thereto.”
22. On 19 October 2010 and in line with the provisions of the SCM 32-188 which
required that the lead negotiator should submit a written feedback report to the
approval authority when the contract is in place, the PED prepared an interim
feedback on the results of the negotiations and contracts concluded as at that
date with suppliers for the supply and delivery of coal to various Eskom power
stations for the period 1 October 2008 to 31 March 2018 as well as a request
for further additional resolutions.
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23. In this feedback, the PED explains, inter alia, the following factors in line with
the SCM 32-188:
24. In light of the fact that there was still uncontracted coal to March 2018, the
PED requested approval of further resolutions. The following resolutions be
approved by the BTC on 3 December 2010:
24.1 “The total quantity of coal contracted is 192.72 Mt;
24.2 The weighted average price for coal contracted is R262.78/y (R8.17 GJ
at a transport portion of R97.32/t);
24.3 The total value of contracts concluded is R50 561 million;
24.4 The Divisional Executive has taken all steps necessary to give effect to
the above including the signing of contracts or all other documentation
or consents related thereto; and
24.5 The Committee ratifies the transport component (R/t) which is not within
the approved mandate.
24.6 The Division Executive is granted the power to delegate further, the
following contingencies to be executed by means of delegation consent
forms (DCFs) for contracts already agreed:
24.6.1 extended duration of individual contracts by not more than six
months when necessary;
24.6.2 increase the value of individual contracts concluded by not more
than 10% of the original contract value capped at R500 million, and
will not exceed the overall approved mandate;
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24.6.3 increase coal quantities contracted by not more than 10% of the
maximum contracted quantity totalling 19Mt; and
24.6.4 relax contractual coal qualities temporarily when necessary without
compromising plant performance or integrity and in consultation
with the DE Generation.”
24.9 The Divisional Executive, Primary Energy, is authorised, with the power
to delegate further, to take all the necessary steps to give effect to the
above including the signing of any agreements, consents or other
documentation necessary or related thereto; and
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25.1 Eskom’s Long Term Coal Supply Strategy approved in 2008 focused on
ensuring security of coal supply and minimising the increasing costs of
coal. To give effect to the 2008 Long Term Coal Supply Strategy,
Primary Energy Division (PED) developed a portfolio of related
strategies that include:
26. On 6 September 2012, the BTC approved this long term strategy.
27. On 16 April 2014, the BTC considered a follow-up feedback report prepared
by PED on the results of the negotiations and Coal Supply Agreements
concluded to date with various suppliers for the supply and delivery of coal to
Eskom Power Stations. This was for the period October 2008 to 31 March
2018 as well as the relevant Coal Supply Agreements that have been
contracted for the Life of the Mine. It was noted in this submission that there
was still a requirement for approximately 39.31 Mt of coal to be procured over
the next four years. It therefore made business sense to keep the mandate
open to allow for the procurement of coal to be made expeditiously. The
following shortfalls were projected:
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FY2017 14.09
FY2018 11.13
FY2019 13.09
FY2020 21.26
FY2021 17.02
28. In relation to the feedback in the status of the Medium term Mandate 2008, the
BTC was advised that the Supply Plan of March 2014 and CSOM have
confirmed that there was, over the next four years, still an estimated shortage
of 39.31 Mt. The Medium Term Mandate was seen as the optimum
mechanism to source this need until long-term contracts were put into place
and to fill future gaps between changing burn plans and existing supply. The
Medium Term Mandate also provided an opportunity for Emerging Miners to
be identified and developed and for Eskom to provide support for Emerging
Miners in that complex environment.
29. The BTC noted the feedback given and in light of the projected
shortfalls, the BTC supported, inter alia, the recommendation that:
29.1 The team continues to negotiate and conclude Coal Supply Agreements
with suppliers within the parameter of the mandated pricing and
qualities as approved by the BTC on 11 September 2008 and the
additional resolutions approved by the same Committee on the 3
December 2010. The latest Supply Plan indicate that there will continue
to be a shortfall of coal when comparing the burn requirements to the
existing contracted supply of coal, there is therefore a continued need
for flexibility in supply which will be met through medium term supplies,
hence to keep the mandate open.
29.2 The PED be authorised to take all the necessary steps to give effect to
the above including the signing of any Coal Supply Agreements,
consents or other documentation necessary.
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30.2 It will be beneficial to the organisation that this Medium Term Mandate
remains open until the entire mandated volumes of 490.8Mt have been
procured and only then can it be closed. This would allow PED to
negotiate and conclude Coal Supply Agreements for Life of Mine (LOM)
where possible, thereby securing the resource and ensuring security of
supply for Eskom.
30.3 The latest Supply Plan indicates that shortfall will continue to exist when
comparing the burn requirements to the existing contracted supply of
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31.1 “That the total quantity of coal contracted to date is 394.09Mt (as at
June 2015) of the 490.8Mt in the mandate approved in 2008.
31.2 That the weighted average delivered cost of coal contracted is R375.33
(three hundred seventy five rands and thirty three cents) per tonne
(comprising a coal portion od R253.24 (two hundred and fifty three
rands and twentyfour cents) per ton at a calorific value (CV) of 20.15
MJ/kg (As Received) and a transport portion of R122.09 (one hundred
and twenty two rands and nine cents) per tonne.
31.3 That the Primary Energy team will continue to negotiate and conclude
Coal Supply Agreements with suppliers within the parameters of the
mandated pricing and qualities approved by the BTC on 11 September
2008, and the additional resolutions approved by the same Committee
on 3 December 2010 and 16 April 2014 respectively until the balance of
96.7Mt of the 2008 Medium Term Mandate is contracted.
31.4 Assurance and Forensics Department (A&F) will provide assurance to
the Group Executive Generation on the procurement processed
followed for contracting the 96.7Mt before concluding the remaining
coal contracts.”
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33. The Eskom PED Contracting Requirements for Coal of November 2013
(which evolves with changes in circumstances over time) sets minimum
requirements applicable for contracting for coal either on a short or
medium term. Material requirements include the following:
33.1 The Environmental and Legal Requirements:
33.1.1 Valid Mining right/Permit and OFF-Take Agreements where
applicable;
33.1.2 Approved Environmental Management Program Report;
33.1.3 Latest detailed Closure Cost Assessment Report;
33.1.4 Integrated Water Use License Application/Permits (IWULA);
33.1.5 National Environmental Management Act 98 (NEMA)
Authorisations.
33.2 Safety and Health Requirements:
33.2.1 Safety Health and Environment Policy;
33.2.2 Letter of Good Standing with Compensation Commission;
33.2.3 A copy of legal appointments and related qualifications;
33.2.4 Baseline Safety Health and Environmental (SHE) Risk Assessment.
33.3 Technical including Quality Requirements:
33.4 Resource Statement as well as Competent Persons Report;
33.5 Borehole information;
33.6 Mine Plan and Schedule
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39. The sequence of events leading up to the conclusion of the coal supply
agreement are as follows and within the parameters of the Medium term
Mandate 2008 (the documents are in the bundles: Tegeta/Brakfontein
prvided to the Public Protector)-
39.1 Eskom’s first interaction on Brakfontein was on 15 May 2012. The offer
entailed 80 tons per month of 21MJ/kg coal with an immediate off-take.
For a summary of Eskom’s engagement on the Brakfontein resources,
we refer to an internal memorandum from Primary Energy to the Group
Executive: Commercial and Technology dated 26 May 2014. The
memorandum provides a high-level overview of the initial process from
2012 to May 2014.
39.2 During January 2014 Tegeta Explorations and Resources (Pty) Ltd
(“Tegeta”) again approached Eskom to potentially supply from the
Brakfontein resources;
39.3 Only in 2014 Eskom had initiated an environmental assessment for the
potential of the Brakfontein resources. An environmental report by
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39.9 The meeting of 23 September 2014 indicated that coal from Brakfontein
is potentially suitable for use at certain Eskom power stations.
39.10 On 23 September 2014, Tegeta provided Eskom with a formal offer for
seam 4 lower setting out the proposed volume, price and qualities
39.11 A presentation on the resource evaluation was done in November 2014;
39.12 On 23 and 30 January 2015 Eskom and Tegeta had extensive
discussions on the qualities, volume and price, including the mining
techniques Tegeta will follow. As part of the price negotiation Eskom
specifically informed Tegeta that “JB urged that Tegeta review its price,
if they are unable to review their price Eskom would have to look at
alternative sources.”
39.13 On 10 March 2015 Johan Bester from Eskom Fuel Sourcing addressed
an internal memorandum to Vusi Mboweni where he recommends
having reference to the Medium Term Mandate, the conclusion of a coal
supply agreement as follows –
39.13.1 Price at R13.50 per gigajoule for a combustion of seam 4 upper and
lower;
39.13.2 Volume commencing at 65 000 tons per month from 1 April 2015
increasing to 100 000 tons per month from 1 October 2015
39.13.3 Duration 1 April 2015 for ten years;
39.14 On 10 March 2016 Eskom and Tegeta concluded a coal supply
agreement for the required quantity and quality of coal form the
Brakfontein resource.
40. Eskom has prepared a report to National Treasury setting out the
process from conclusion of the coal supply agreement. The report also
deals with all payments and coal rejected by Eskom. We refer the
Public Protector to the National Treasury files, specifically in respect of
round 5 and 6. These files contain further contextual information for the
Public Protector to consider.
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41. Eskom concluded a long term coal supply agreement (“CSA”) with
Optimum Coal Mine (Proprietary) Limited (“OCM”) and Optimum Coal
Holdings (Proprietary) Limited (“OCH”) in 1993, which CSA expires on
the 31 December 2018. For the duration of the CSA, Eskom and
OCM/OCH (controlled by Glencore South Africa at that stage) have had
a number of impasses regarding the coal supply from the Optimum
Mine to Eskom’s Hendrina Power Station. As a result of these impasses
which include, inter alia, the failure to meet the coal quantity
requirements of the power station, Eskom initiated arbitration
proceedings against OCM and OCH for the accrued penalties, it was
placed under voluntary business rescue. Despite various supply
concerns with OCM during the business rescue process, OCM has
continues to supply coal to the Hendrina Power Station based on the
price determined in the CSA.
42. During any business rescue proceeding, such as the OCM business
rescue, the business rescue practitioner is solely in charge of the
operation of OCM and has an obligation to develop a business rescue
plan to ultimately discharge the company from business rescue once It
is no longer financially distressed. The business rescue practitioner
through its own processes concluded, inter alia, that the best manner in
rescuing the business would be for another company to acquire OCM.
Through the business rescue process the Tegeta/OCM transaction
came about.
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44. The business rescue process of OCM has now been concluded.•, The
supply of coal to the Hendrina Power Station is on the basis set-out in
the coal supply agreement, with specific variations as recorded in
correspondence exchanged between the parties to ensure OCM is able
to meet the coal quality requirements.
45. It should be duly noted that Ms Nteta has expressed a high level
answer on the question asked, however, she has limited knowledge on
specific information as she was not the contract manager for the
Hendrina Power Station.
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46. The supply of coal from the OCM through Tegeta (who in terms of the
commercial transaction between the business rescue practitioner of
OCM, Glencore and Tegeta would become the owner) to the Arnot
Power Station was necessitated by the closure of the Arnot Coal mine.
The closure of the Arnot Coal mine was as a result of the CSA with
Exxaro coming to an end due to the effluxion of time (i.e. 31 December
2015).
47. For various commercially sound reasons, one of which being the
astronomical cost at which Eskom bought coal from Exxaro
(approximately R1132 per ton) and operational concerns with the
running of the Arnot mine by Exxaro, Eskom elected not to continue
with the coal supply from the Arnot coal mine. Any extension of such a
coal supply agreement, despite bona fide efforts to do so in Eskom's
view would not have been in the best interest of the public. Keeping this
in mind, Eskom initiated a public procurement process for the supply of
coal to the Arnot Power Station in August 2015. The coal quality
requirements of the Arnot Power Station are higher than those of most
of Eskom's power stations, which makes securing suppliers so much
more difficult.
48. As will be gleaned from the documents provided to the Public Protector
(in the Arnot Power Station RFP files), this RFP process only ended in
August 2016. When considering the emergency supply by Eskom for
the period 1 January 2016 to 30 September 2016 for the Arnot Power
Station, regard must be had to the procurement process for coal which
Eskom initiated in August 2015. Eskom also refers the Public Protector
to the files labelled as Exxaro-Arnot, specifically the invoices reflecting
the rand-per-ton for the cost of coal which Eskom paid to Exxaro until
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49. By 1 January 2016 Eskom had to secure emergency coal supply from
other mines such as OCM in order to ensure continued supply to the
Arnot Power Station. OCM is one of a handful of mines in close
proximity to the Arnot Power Station capable of supplying the coal
quality specifications required by the power station. The only reason
OCM had available capacity to supply Eskom on an emergency basis
with the higher grade coal, was because its export mine had excess
capacity due to the reduction of output prior to the business rescue
process. The coal specification supplied to Hendrina Power Station is
not suitable for the Arnot Power Station.
51. The procurement process followed for the supply of coal for Amot
Power from Tegeta was based on an emergency declared on 23
December 2015 on Arnot Power Station coal supply by the Primary
Energy Technical Control Centre (PED TCC), to mitigate the risk of low
coal stock levels." As discussed above. The contract between Eskom
and Exxaro in respect of coal supply to Amot Power Station was due to
come to an end on 31 December 2015. The security of supply of coal
from January 2016 was thus at risk due to security threats against coal
supplied by road transport to Amot Power Station and the risk of strike
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action by the Amot Colliery employees, due to the closure of the Amot
Colliery. Two suppliers, South 32 Holdings (Pty) Ltd and Tegeta
Exploration and Resource (Ply) Ltd were contracted for the month of
January to supply the power station.
52.1. “The PED TCC declared the Amot Coal Supply Emergency with
immediate effect;
52.2. The SM Integrated Planning and the Coal Supply Manager at Arno(
were to determine what coal was in the system that can be moved to
Arnot and that the Festive Period safety protocol should be observed;
52.3. The Acting GM Fuel Sourcing was requested to follow the emergency
procedure to procure additional coal and to speed up the conclusion of
contracts in the pipeline.
52.4. The Chief Executive and the Group Executive was to be requested to
sign-off any deviations from the standard process should need arise;
52.5. The Acting GM Coal Operations and Chairperson PED TCC was to
submit a request to reduce burn at Arnot;
52.6. Daily status update messages to be sent to the Group Executive; and
52.7. The PED SGM to engage Eskom Security DE for support on security
intelligence.”
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coal to the Arnot Power Station. Tegeta's offer (in line with the Eskom
procedure) was received on 8 January 2016 in respect of coal from the
Optimum Colliery. At that stage the OCM (in business rescue) the
holder of the mining right for the Optimum Colliery was in the process of
being acquired by Tegeta through the acquisition of the majority of the
issued shares of OCH. On 14 January 2016 Tegeta and Eskom
concluded a short term contract for the supply of 100 000 tons of coal
for the Arnot Power Station as emergency supply.
54. During February 2016, there was a further need identified to increase
the supply of coal for the 3 months to 30 April 2016. On 15 February
2016 Ms. Nteta prepared a briefing note to Mr. Vusi Mboweni: Senior
General Manager: Primary Energy Division justifying the need to
conclude a further coal supply agreement for the supply of 500 000 of
coal to meet the needs of, inter alia, the Arnot Power Station.
56. The offer to supply coal for Amot Power Station was provided to Eskom
by Tegeta Exploration and was thus explored. The process followed
was in line with the relevant Eskom coal procurement policies and
Mandate documents. During the period of contracting the supply in
February 2016 for Arnot Power Station, the current BEE certificate
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58. Similarly in this case, compliance with the purchasing and contracting
processes followed are best illustrated by the documents already
provided to the Public Protector.
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61. On 12 August 2015 Eskom issued a RFP under Enquiry Number: GEN
3264 to test the market for coal that meets the coal quality requirements
for the Arnot Power Station. This process only concluded during August
2016 with the following outcome:
61.1. Nine bidders responded to the RFP, three bidders failed to comply with
the mandatory gatekeeper requirements and were disqualified.
61.2. The six bidders that passed the mandatory gatekeeper requirements
were evaluated on the following functional requirements in terms of the
RFP: Environmental, Technical, and Health and Safety. The results of
the evaluation was as follows –
61.2.1. Four bidders passed the 60% functionality threshold for immediate
supply to Amot or another power station;
61.2.2. One of the bidders passed the 60% functionality threshold for future
supply.
63. It was recommended that the Board Tender Committee concluded coal
supply agreements with the four bidders who participated in the RFP. In
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addition to that due to the further requirement for coal for the Arnot
Power Station, it was recommended that the agreement with Tegeta be
extended for a further six months to ensure security of supply to the
Arnot Power Station. As part of the approval for the conclusion of the
Tegeta extension agreement it was resolved to submit a request to
National Treasury.
66. We now deal with the advance payment, which essentially also entailed
an extension of the coal supply agreement for a further five month
period, pending the conclusion of the Arnot Power Station RFP process.
As pointed out, the Arnot Power Station RFP process ran parallel to the
emergency supply procedure.
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68. SCM 32-1034 provides, inter alia, that whilst Eskom does not
encourage the provision of advance payments, an advance payment
may be an acceptable strategy for Eskom in certain circumstances. This
may be considered in cases where the supplier will have to make a big
capital outlay before starting with the contract. It further indicates that
an advance payment will only be issued on condition that the supplier
must provide an advance payment bond/guarantee and that the
relevant contractual provisions relating to advance payments also need
to be included in the contract.
69. On 8 April 2016 Tegeta made an offer to supply additional coal for the
Amot Power Station from the Optimum Coal Mine over a period of five
months. This offer was made subject to a prepayment for the coal.--
The purpose of prepayment was to secure coal for Eskom, particularly
of the high quality that was required by Arnot Power Station. To ensure
Tegeta's ability to meet the production requirements for both Hendrina
and Arnot in the short term, prepayment was requested. Tegeta
indicated that the prepayment would enable them to operationalise
plant and equipment that had been placed on 'care and maintenance'
during the shutting of the export component of the mine.
70. On 11 April 2016 a submission prepared by Ms. Nteta for, inter alia, the
approval to authorise the Chief Financial Officer to approve the basis for
prepayments to secure the fixed coal price served before the BTC. One
of the key assumptions noted in this submission was that the principle
of prepayment for security of supply had been established by previous
approvals. The BTC resolved, inter alia, that the CFO is authorised to
approve the basis for prepayment to secure the fixed coal price,
provided that:
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71. The agreement regarding coal supply and limited guarantee and
cession and pledge in security between Eskom and Tegeta was
concluded on 13 April 2016.
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75. The Public Protector is referred to the additional bundle enclosed hereto
on further documents provided to National Treasury on 14 September
2016 dealing with the advance payment.
76. The notion of advance payments to suppliers for the supply and delivery
of coal to enable them to provide Eskom with the requisite quantities to
enable it to meet its coal stocks is not a new phenomenon in Eskom
procurement. A mandate to make advance payments to enable
suppliers to undertake projects needed for processing, sampling, quality
control and loading of coal was approved for the emergency
procurement process in 2008 subject to the following conditions:
76.1. Advance payments to be recovered over contract period on a pro rata
basis.
76.2. Co Gx to approve contingency spend.
76.3. Payment terms to be at least 20 days from invoice date.
76.4. Road Repairs to be capped at a maximum of R500m.
76.5. IT system to be quantified before approval is given.
77. Furthermore and as part of the Medium Term Mandate of 2008, the
Treasury Department of Eskom prepared a financial review dated 18
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78. The following is a list of example where Eskom entered into advance
payment agreements with its suppliers:
78.1. Eskom concluded a coal processing contract with Isambane (Pty) Ltd
with advance payment terms in respect of the approved emergency
procurement process in 2008. Three loans were granted to Isambane.
Isambane was required to conduct beneficiation and stockpiling
services. The terms of the agreement was that Isambane would perform
these services and eventually pay off the advance payments.
78.2. An advance payment in the form of a loan was made to Liketh in 2008
to buy equipment to process coal from Kleinkopje Pit 5 West. The loan
was recovered in 12 consecutive installments from 1 March 2008.
78.3. Eskom has entered into loan agreements to assist Rand Mines for
Capital expenditure. The first loan was payable over a period of 20
years until 31 December 2013. The second loan was in 1998, and it will
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RESPONSE TO THE LIST OF QUESTIONS FOR BRIAN MOLEFE AND ANOJ SINGH IN
RE: INVESTIGATION INTO COMPLAINTS OF IMPROPER AND UNETHICAL CONDUCT
BY THE PRESIDENT AND OFFICIALS OF STATE ORGANS DUE TO THEIR ALLEGED
INAPPROPRIATE RELATIONSHIP WITH MEMBERS OF THE GUPTA FAMILY
5.283. I posed a number of questions to Mr Brian Molefe (“Mr Molefe”) and Mr Anoj
Singh (“Mr Singh”). The ensuing paragraphs will deal with their response, as is, to
said questions:
Summary of their job roles and key responsibilities within Eskom SOC
Limited ("Eskom") and Starting dates at Eskom and the committees they
form part of, both at Exco and Board level, if applicable.
7. This role has both a strong internal and external focus but the operational
Group Executives and other Executives take accountability for day-to-day
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7.1.1. Ensure that the KPI's as set out in the Shareholder Compact are
achieved;
7.1.6. Ensure that effective Executive business plans and budgets are
formulated and implemented;
7.1.7. Ensure that effective personal development plans are formulated and
implemented for all direct reports;
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7.2.1 Analyse and interpret the global African and South African
environment in which Eskom operates and identify key factors
influencing the business now and in the future. These include:
7.2.2 Review and obtain Board approval for the vision, mission and values
of the organisation to position it effectively within the current and
future social, political and business environment in which it operates;
7.2.3 Determine the key financial and other measures to be adopted by the
organisation for the short and medium term and approve targets for
these in the current financial year;
7.2.4 Identify opportunities for new business development and growth and
define the organisation's policy with regard to new initiatives from a
“line of business”, geographical location, research and development
and other perspectives; and
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7.3.1.1 Shareholders;
7.3.1.2 Various Government departments;
7.3.1.3 The Board of Eskom;
7.3.1.4 Customers;
7.3.1.5 Eskom employees;
7.3.1.6 The community which Eskom serves;
7.3.1.7 Suppliers; and
7.3.1.8 International politicians, business leaders and institutions such as
industry players and credit rating agencies.
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11. Mr Singh is not a member of any of the Board committees within Eskom.
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12.1 Taking personal leadership and decision making in the Finance Group;
12.2 Determine the vision and mission of the Finance Group and position it to
contribute to the achievement of the Eskom vision and mission;
12.3 Approve policies and standards regulating key aspects of those services
for which the position is responsible;
12.5 Establish annual, medium and long-term objectives, goals, policies and
strategies for the Finance Group in alignment with Eskom's strategic intent
and business model, obtains Eskom Board approval;
12.9 Through formal processes and personal leadership ensure that sound
corporate governance principles are adhered to throughout the Group;
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12.13.1 Scan the financial environment locally and globally to identify key
financial issues and best practice;
12.13.3 Ensure all Eskom financial policies comply with legislation; and
12.14 Treasury:
12.15 Manage development and execution of the funding and hedging strategy.
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12.18.6 Identify key financial ratios and performance indicators for Eskom
and monitor effectiveness;
12.9 Regulation;
12.10 Taxation;
12.11 Insurance;
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12.15 Procurement.
14. Messrs Molefe and Singh accordingly do not restate Eskom's procurement
policies and framework for the procurement of coal in order to avoid
unnecessary duplication and prolixity. In that regard we refer the Public
Protector to the relevant sections V to VII of Ms Nteta's response. Those
sections are to be read as if specifically incorporated herein.
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16. When considering the table, please have specific regard to the extract from
the DOA in respect of procurement which records that –
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6. Procurement
6.4. Proof that the expenditure is budgeted for or approved must accompany
the recommendation for approval.
6.5. All procurement is subject to alignment within the Corporate Plan targets,
or any procurement framework developed by the GE Technology and
Commercial.
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6.11. The Board IFC and BTC are authorised to delegate any higher authority
to Exco or management in this regard.
6.12. Auditor fees must be approved by the Audit and Risk Committee subject
to the approved budget.
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6.17. All procurement decisions must be reported to the next level committee
for information.
17. The involvement of Messrs Molefe and Singh is accordingly limited to the
extent required by the DOA read with SCM 32-1034.
The role played by both Messrs Molefe and Singh in the procurement and
subsequent awarding of the above contracts
18. In respect of the involvement of Messrs Molefe and Singh in the procurement
of coal from Tegeta for the Majuba Power Station, Hendrina Power Station
and the Arnot Power Station the following is recorded:
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18.1 Mr Molefe and Mr Singh were not employed by Eskom at the time Eskom
and Tegeta negotiated and concluded a coal supply agreement in respect
of the Brakfontein resource.
18.2 Similarly, Optimum Coal Mine ("OCM") and its predecessors, has supplied
Eskom with coal to the Hendrina Power Station for a major part of the life
of the power station and in terms of a coal supply agreement concluded on
4 January 1993 (with other agreements dating back to the 1970s).
18.3 Shortly after his secondment to Eskom as its Acting GCE, Mr Molefe and
his executive team, was involved in the decision to terminate settlement
discussions with OCM relating to the proposed renegotiation of the
Hendrina Power Station coal supply agreement The proposed
renegotiation of the Hendrina coal supply agreement culminated in a
number of commercially substantial differences which included the price
and the penalty regime between Eskom and OCM and which process was
initiated in terms of a co-operation agreement concluded in May 2014. The
proposal received from OCM, however, would to a great extent have
impacted negatively on Eskom and as a result Mr Molefe decided not to
entertain any further discussions thereon.
18.4 Mr Molefe and his executive team was involved in discussions with the
business rescue practitioners ("BRP") of OCM to ensure security of supply
to the Hendrina Power Station during the business rescue process,
pursuant to the BRP stopping supply to the Hendrina Power Station in
August 2015. During this process, Mr Molefe and his executive team
remained adamant that the price of coal should remain R150 per ton,
despite a request by the BRP to increase the cost of coal to more than R
530 per ton during the interim arrangement which had been initiated as
part of the business rescue process.
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18.5 Mr Molefe and his executive team were approached with proposals for the
purchase of OCM by a number of entities, Eskom referred these entities to
the BRPs of OCM.
18.6 Mr Molefe and his executive team were engaged by the BRP on proposals
made to Eskom on the option to ensure the sustainability of OCM,
including initiating Eskom's own assessment of the economic viability of
OCM to supply coal to Eskom without contribution from the export mine.
18.7.1 The Tegeta proposal that the BRP had received as more fully set-out
in the report by the Competition Commission.
18.7.3 The decision not to exercise its option to extend the coal supply
agreement with Exxaro was based on the adverse impact that, inter
alia, the price of coal from the Arnot Colliery would have on Eskom.
18.7.4 The emergency supply from suppliers such as Tegeta and South 32
Holdings (Pty) Ltd (South 32), was to ensure security of supply to the
Arnot Power Station, pending the finalisation of the Arnot RFP issued
in August 2015. The supply of coal to the Amot Power Station was
exacerbated by the decision of Eskom not to extend the Exxaro coal
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18.7.5 The request received for the prepayment of coal by Tegeta and the
resolution by the Board Tender Committee ("BTC") to approve the
prepayment.
19. Mr Singh, on the other hand, was authorized by the BTC to approve the basis
for prepayment to secure the fixed coal price, as more fully detailed below.
20. Messrs Molefe and Singh's involvement and participation in the procurement
of coal was limited to what is required in terms of the delegation of authority
from the accounting authority in accordance with their respective roles and
responsibilities.
Was the process followed in line with the relevant Eskom procurement
policies and if so, which policy and what relevant sections
21. The procurement processes followed was in line with the relevant applicable
Eskom procurement policies, as outlined in Ms Nteta's response.
If there were any deviations, what necessitated such deviations and how
were they managed.
22. The procurement of coal from Tegeta and South 32, to address the
emergency at Arnot Power Station, was in accordance with the process for
emergency coal procurement in terms of SCM 32-1034. Ms Nteta has dealt
with this in more detail in her response.
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Did Tegeta comply with all the applicable legal and Eskom internal
requirements for securing a Coal Supply Agreement?
23. At the time of the conclusion of the coal supply agreement with Tegeta in
relation to its Brakfontein resource, all contractual documentation, information
and approvals had been provided. Ms Nteta has dealt with this in more detail
in her response.
If not, which requirements were not met and how were these managed.
24. N/A
How was the pricing determined on the above contracts and how does it
compare to other sources, if such a comparison could be made?
25. The pricing is determined based on the comparative analysis and the general
pricing principles for coal based on the market value.
Explain the circumstances for the prepayment to Tegeta and the role played
by both Messrs Molefe and Singh in the approval of such a prepayment.
27. Mr Molefe had no role during the pre-payment, save for being briefed on the
rationale for the prepayment.
28. In terms of the BTC resolution, Mr Singh was to provide assurance that the
transaction was economically viable for Eskom. Mr. Singh, in providing the
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required assurance to the BTC took the following commercial and financial
considerations into account when considering the viability of the prepayment:
28.1 The coal purchased was budgeted for and in line with the Corporate Plan;
28.3 Based on information provided the price of coal was bench-marked and
found to be commercially acceptable;
28.4 A 3.5% discount was negotiated with Tegeta for early payment of 6
months which translates into a 7% annual discount;
28.5 A 4% negative cost of carry benefit accrued to Eskom due to the surplus
cash on hand;
28.6 Additionally, the next best option to acquiring coal would be to bum diesel
to ensure no load shedding in winter. This option would have been the
most expensive option as the cost of production of coal is R277/MWh and
the cost of diesel is R2245IMWh;
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28.8 Adequate and appropriate security had been provided by Tegeta in the
form of a limited guarantee and pledge of the issued shares of Tegeta;
28.9 This was accepted after careful consideration of the net asset value of
Tegeta as contained in their latest approved annual financial statements
and a review of their latest management accounts;
28.10 Additional security was derived from the underlying contracts from the coal
supply of Tegeta with Eskom – e.g. Brakfontein contract over 10 years
approximately R4 billion.
29. The following is a list of examples where Eskom entered into advance
payment agreements with its suppliers:
29.1 Eskom concluded a coal processing contract with Isambane (Ply) Ltd with
advance payment terms in respect of the approved emergency
procurement process in 2008. Three loans were granted to Isambane.
Isambane was required to conduct beneficiation and stockpiling services.
The terms of the agreement were that Isambane would perform these
services and eventually pay off the advance payments.
29.2 An advance payment in the form of a loan was made to Liketh in 2008 to
buy equipment to process coal from Kleinkopje Pit 5 West. The loan was
recovered in 12 consecutive installments from 1 March 2008.
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29.3 Eskom has entered into loan agreements to assist Rand Mines for Capital
expenditure. The first loan was payable over a period of 20 years until 31
December 2013. The second loan was in 1998, and it will be paid in full by
December 2017. Eskom also assisted another Rand Mines operation with
a loan for bridging finance. This loan is paid up.
29.4 For the financial period ending 31 March 2016, Eskom made pre-
payments totaling R6, 470,215,392 (six billion four hundred and seventy
million two hundred and fifteen thousand three hundred and ninety-two) A
detailed analysis of this figure is attached as "A" It is also reflected in
Eskom's Annual Financial Statements Note 18.
30. The BTC approved the prepayment on 11 April 2016 as per the minutes of the
meeting and resolution attached.
What was Eskom's cash flow position prior to making the prepayment and
how did it affect the cash flow position afterwards?
31. The following statement regarding Eskom's cash position related to the
prepayment that was made on 13 April 2016.
"Eskom's cash position was not adversely impacted as funds for the
prepayment was funded from the R18bn Cash & cash equivalents. For the
remainder of April 2016 the Cash & cash equivalents were approximately
R18bn. As at 31 August 2016 Eskom had liquid assets of R38bn (including
Cash & cash equivalents of R29.9bn)."
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What role did both Messrs Molefe and Singh play in the approval of the sale
of Optimum Coal Holdings assets to Tegeta?
32. Messrs Molefe and Singh played no role in the approval of the OCM sale to
Tegeta OCM is a separate and independent company. The BRP of OCM
concluded a sale of shares and claims agreement with Tegeta.
33. Eskom's involvement in the sale of shares and claims by Tegeta from the BRP
of OCM was limited to the approval of the cession and assignment of the coal
supply agreement from OCH to Tegeta. We refer the Public Protector to the
Non-Confidential Report by the Competition Commission dated 9 February
2016, which depicts Eskom's involvement in the process. For convenience, we
also enclose a set of the documents relating to the consent sought from
Eskom.
34. On 16 July 2015 Eskom issued a letter of demand to OCH and OCM for the
payment of the amount of R 2, 176 530 611.99 (Two billion one hundred and
seventy-six million six hundred and eleven rand and ninety-nine cents) to
Eskom for its failure to supply and deliver to the Hendrina Power Station coal
which complied with the coal quality specification contemplated by the coal
supply agreement.
35. Despite demand by Eskom, OCH and OCM failed to make payment to Eskom.
Eskom then proceeded to issue a summons (including the referral to
arbitration) claiming the accrued penalty amount. The pertinent provisions of
the claim read as follows –
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"The Defendants have for a consecutive period from 1 March 2012 to 31 May
2015 (the "Supply Period"), failed to supply the Plaintiff with coal which
meets the quality parameter contemplated in clause 3.4 of the First
Addendum, in that 20% to 45% of the coal supplied and delivered by the
Defendants to the Plaintiff on a monthly basis, during the Supply Period, was
smaller than 0.81mm. Despite this failure by the Defendants, the Plaintiff
has, without prejudice to its right in terms of clause 3.6 of the First Addendum,
paid the Defendants for such coal, without applying any adjustment or
reduction to the payment, for the Defendants' failure to comply with the quality
parameters, even though the Plaintiff was entitled to adjust or reduce the
payment accordingly.
36. On 4 August 2015 OCM and OCH were placed under business rescue. In
terms of the Companies Act, 71 of 2008 the legal proceedings against OCM
was stayed pending the finalisation of the business rescue proceedings. The
BRP discharged OCM from business rescue on 31 August 2016.
37. Eskom has reinstated the arbitration proceedings against OCM for the
recovery of the accrued penalties. For convenience we enclose a set of the
documents relating to the claim.
What is the current status of the penalties, are they still applicable?
38. During the business rescue process, an interim arrangement was entered into
with the BRP in terms of which Eskom relaxed certain quality parameters and
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further suspended the imposition of penalties to the extent that the coal
qualities do not materially deviate from the quality specification. In that regard
the power station and OCM had to continue on a daily/weekly/monthly basis to
comply with all sampling and contractual requirements as required by the
CSA, including to provide OCM with the required notices for non-compliance.
39. However, since OCM has been discharged from business rescue on 31
August 2016, the interim arrangement has come to an end and the CSA is
reinstated. Therefore, in relation to penalties levied for the failure to comply
with the coal qualities Messrs Molefe and Singh confirm that they are
applicable. For ease of reference we enclose a set of documents relating to
the interim arrangement.
What were the reasons Exxaro's contract to supply the Arnot Power Station
was not renewed?
40. Eskom elected not to continue with the coal supply from the Arnot coal mine
for various commercially sound reasons, one of which being the astronomical
cost at which Eskom bought coal from Exxaro (approximately R1132 per ton)
and operational concerns with the running of the Arnot mine by Exxaro. Any
extension of such a coal supply agreement, despite bona fide efforts to do so
in Eskom's view would not have been in the best interest of the public. The
Public Protector is referred to the files labelled as Exxaro-Arnot, specifically
the invoices reflecting the rand-per-ton for the cost of coal which Eskom paid
to Exxaro until 31 December 2015. As at December 2015 Eskom paid to
Exxaro, R1454.43 per ton.
What are the payment terms for Tegeta In terms of the delivered product and
how do they compare to the other suppliers?
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41. In terms of the interim arrangement with OCM concluded during business
rescue (September 2015) the payment terms for the coal to Hendrina Power
Station was changed to 7 days after invoice from OCM in order to ensure
OCM is sustainable.
42. The 7-day payment terms was a prerequisite by the BRP to Tegeta for the
supply of coal to the Arnot Power Station from the Optimum Colliery.
43. As OCM was discharged from business rescue on 31 August 2016, the Coal
Supply Agreement, including its payment terms has been reinstated.
Accordingly, the 7-day payment terms are no longer applied. The payment
terms are in terms of the Coal Supply Agreement which is as follows:
Preliminary Response By The Eskom Board To The Allegations And Statements Made In
The Section 7(9) Notice Of The Public Protector Dated 4 October 2016 Which Purports To
Implicate The Eskom Board And Certain Board Members In Relation To The Investigation
By The Public Protector On Alleged Improper And Unethical Conduct By The President And
Officials Of State Organs Such As Eskom Due To Their Alleged Inappropriate Relationship
With Members Of The Gupta Family
5.284. I received the above mentioned response in relation to a notice in terms of section
7(9) which was served on the Board of Eskom.
5.285. The Eskom Board expressed concern with regards to the timeframes which were
given to them in order to formulate a response on behalf of all Board members.
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5.286. The response further sets out the applicable legal framework governing the Eskom
Board which included:
a) The PFMA;
5.287. As mentioned above, this report will not deal with contracts awarded to Tegeta via
the Brakfontein mines.
5.288. The Eskom Board stated inter alia the following with regards to the approval of
contracts to OCM and Tegeta to supply coal to the Hendrima power station and
Arnot power station and how the conflicts of interest were mitigated:
a) The decision taken to purchase OCM by Tegeta was a BRP process and
Eskom had no influence in this regard. Eskom was not part of this process
other than to agree to the cessesion of the CSA to Tegeta.
b) OCM declared hardship in terms of the CSA and wanted a revised price of
coal at a rate of R442/ton. A coal quality dispute existed between Eskom and
OCM to the value of R2 billion. Eskom refused to accept the price and
demaned settlement in terms of the penalty. This led to OCM being placed
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c) The Board Tender Committee members who made the decisions regarding
OCM are Mr Z Khosa, Ms C Mabude, Ms N Carrim and Ms D Naidoo. Mr
Pamensky is not part of the Board Tender Committee and had no access to
information relating to this transaction.
f) Tegeta prepayment April 2016- Tegeta was contracted to supply 1.2 million
tons of coal to Eskom. There have been numerous other prepayments made
since 2008 ranging between R100 million to R400 million. Cost plus mines
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h) Mr Pamensky was not part of the Board Tender Committee and thus, could
not have influenced any decision in respect of Tegeta.
j) Ms Cassim was not a member of the Board Tender Committee and thus, her
alleged conflict is of no consequence.
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5.290. A review of Eskom Supplier Payment Control forms submitted for Tegeta was
performed. I concentrated specifically on payment forms relating to Arnot power
station. It should be noted that Eskom has reserved their right to supplement the
information supplied to my office and as such the information presented below
represents what I received from Eskom.
5.291. The table below reflects the information received from Eskom relating to amounts
paid to the Arnot Power station:
5.292. An analysis of the Invoices issued to Eskom by Tegeta over the same period
revealed the following:
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a) The above mentioned amounts which were paid by Eskom to Tegeta for Arnot
power station was for the haulage of coal.
b) Coal was charged at a rate of 19.69/GJ which represented the 3.5% discount
which Tegeta has allegedly given to Eskom.
c) An analysis of the invoices submitted for the coal supplied to Arnot power
station for the period May 2016 to July 2016 revealed that the average price
paid for coal per ton was approximately R577 exclusive of VAT.
d) An analysis of the average price paid for the haulage of coal for the period
May 2016 to July 2016 was R105 per ton of coal delivered.
e) Therefore, the average price paid for coal from Tegeta for the Arnot power
station was approximately R682 per ton of coal exclusive of VAT.
*Important note
f) The discount given is somewhat misleading, both Eskom and Tegeta were
aware that Tegeta was sourcing coal from OCM at the rate of 18.68/GJ.
Therefore, Tegeta was not actually giving any material discount as they were
still charging Eskom 19.69/GJ.
Loan Consortium
5.293. The Loan Consortium consisted of Rand Merchant Bank, a division of First Rand
Bank Limited (“RMB”), Investec Limited (“Investec”) and Nedbank Limited
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(“Nedbank”). During a meeting with the Loan Consortium, the following was
stated:
a) A secured loan to the sum of R2.5 billion was provided to OCH. In terms of the
loan agreement, the Loan Consortium would hold all assets of OCH as
security for the loan.
b) Once in business rescue, the Loan Consortium was a secured creditor and
thus consultations needed to be held with them throughout the business
rescue process.
c) During the initial months of the business rescue, only OCM was considered to
be sold.
e) During the first meeting between the Loan Consortium and Oakbay/Tegeta,
The Loan Consortium made it clear that they required full payment of the loan
amount. Oakbay/Tegeta gave options whereby a portion of the amount would
be lent to them or if the Loan Consortium would consider a reduced amount to
be paid as full and final settlement. This offer was also rejected by the Loan
Consortium.
f) On the 8th of December 2015 a second meeting was held with Oakbay/Tegeta,
some of the individuals present during this meeting was Mr Ajay Gupta, Mr
Nazeem Howa, and Ms Ronica Ragavan as well as the Loan Consortium.
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g) Oakbay/Tegeta, reiterated that they did not think they could settle the full
amount. They wished to borrow a portion of the funds from the Loan
Consortium. It was implied by Mr Ajay Gupta, during said meeting with the
Loan Consortium, that they would find that Oakbay/Tegeta is the only party
who would be capable of purchasing this entity as well as obtaining the
necessary approvals from (Approvals from Department of Mineral Resource
and Eskom). The Loan Consortium still maintained that they require
settlement to the full amount of the loan.
h) On 10 December 2015 the BRP’s returned to the Loan Consortium and stated
that Oakbay/Tegeta had agreed to pay R2.15 billion and Glencore would pay
the remaining amount for the loan.
i) A number of conditions needed to be met in order for the sale to proceed. The
following conditions were required:
k) On 4 March 2016 an official letter was given by the Bank of Baroda and this
served as the funds certainty for the purchase of all shares in OCH.
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m) On 8th April 2016, the business rescue plan was approved by the Loan
Consortium.
n) On 11th April 2016, a meeting was held between the Loan Consortium and
the BRP’s. At the meeting the BRP’s informed the Loan Consortium that
Tegeta informed them on the same day that they were short R600 million. The
BRP’s stated that they were informed that offshore funds were no longer
coming in for Tegeta and thus they were short R600 million. It was requested
that the Loan Consortium either defer or loan the balance of R600 million.
They also offered to cede their receivables from Arnot power station for a
period of 3 months and 15 days. The Loan Consortium rejected all these
offers and wanting their loan paid in full.
o) On 14th April 2016, the Loan Consortium received the full amount of the loan
which was owed to them (This means that both Tegeta and Glencore satisfied
their full monetary obligations in terms of this agreement).
a) They were appointed as the BRP’s of OCH and OCM on 4 August 2015.
b) OCM, as per the CSA, is contracted to supply 5 million tons of coal per annum
to the Hendrina Power Station.
c) At the time of the business rescue, OCM was losing approximately R120
million a month. Eskom refused to renegotiate the Hendrina CSA.
d) Received significant calls from parties for the purchase of OCM. During the
early stages of business rescue, only OCM was considered to be sold.
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e) They informed all parties interested in the purchase that they needed consent
from Eskom.
g) At a meeting as Eskom, Eskom stated that OCM cannot just be sold on its
own and that you need to look at OCH as a whole (This means all shares held
by OCH which includes Koornfontein Mine and Optimum Coal Terminal).
i) An agreement was signed with Tegeta for the sale of all shares held by OCH.
One of the requirements for the sale to go through was that Eskom would
provide a release of the guarantee held against OCH.
j) Tegeta needed to pay R2.15 billion and Glencore would pay R400 million.
k) Tegeta as of 1 January 2016 assumed all shortfalls from OCM from a cash
perspective.
l) In January 2016, an agreement was signed with Tegeta for the supply of coal
to Arno power station. OCM delivered coal to Arno power station.
n) BRP’s only found out about the pre-payment made to Tegeta after viewing
interviews on Carte Blanche.
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a) Glencore bought over OCH in 2011 and the deal was finalised in 2012.
b) OCH has a long standing 20 year CSA with Eskom for the supply of coal to
the Hendrina power station.
d) During this co-operation period, negotiations were entered into with Eskom
which culminated in a Draft Addendum to the CSA around March 2015. This
new agreement would see Eskom receive coal at cost price until 2018.
e) They were informed by Eskom that the Draft Addendum was approved by the
procurement committee and Board Tender committee.
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i) Directors of OCM and OCH evaluated the companies position and placed both
OCH and OCM in business rescue.
k) Glencore thereafter spoke to KPMG and they confirmed that their company is
Oakbay.
m) In September 2015, after proposals with regards to a new CSA were rejected
by Eskom, we decided to sell OCM.
n) Pembani wanted to buy OCM, had an exclusivity deal. They tried to negotiate
with Eskom but failed to reach agreement.
s) The most important term of the agreement was that Eskom needs to consent
to the sale.
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t) A meeting was held in November between Glencore, the BRP’s, Eskom and
Oakbay. Eskom informed all parties present at this meeting that they would
not consent to the sale of OCM alone. Eskom stated that the business needs
to be kept together as that is the only way to keep Eskom’s guarantee in
place.
u) After the meeting with Eskom, negotiations proceeded with the sale of all
shares in OCH to Tegeta.
v) Towards the end of November, a stale mate was reached with regards to the
value of all the shares in OCH. Tegeta had an offer of R1 billion rejected.
z) OCM thereafter contracted with Tegeta to supply coal for selling to Eskom.
aa) First contract signed in January for the supply of 100 000 tons of coal.
bb) Second contract was entered into Tegeta for the supply of 400 00 tons of coal.
cc) The haulage rate per ton was approximately R60. OCM paid for the trucking
cost and Tegeta would pay OCM.
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dd) 11 April 2016- Tegeta approached Glencore and said they were R 600 million
short. Glencore said they could not help. The BRP’s were also contacted by
Tegeta and the BRP’s requested a meeting with the Loan Consortium. The
Loan Consortium demanded full payment of the loan.
5.296. Financial transactions, legal contracts, public records and other relevant
information has identified numerous persons and/or entities that were partisan or
played an indirect role to the acquisition under scrutiny. The background to these
parties are as follows:
5.297. Tegeta entered into an agreement to purchase all the shares held by OCH on 10
December 2015 for the amount of R 2.15 billion. At the time, OCH owed R
2,948,479,663.00 to a loan consortium of banks (the “Loan Consortium”) as a
settlement amount in order to release the surety held by the Loan Consortium,
over the amount owed. Werksmans Incorporated (“Werksmans”) was elected to
act as the Escrow Agent to receive and facilitate the payment to the Loan
Consortium. The complete ownership structure of Tegeta has been discussed in
detail above.
5.298. OCH had been supplying coal to Eskom since 1993 and owns 100% of OCM,
Koornfontein Mines, Optimum Coal Terminal, Optimum Vlakfontein Mining and
Exploration, Optimum Overvaal Mining and Exploration, Optimum Mpefu Mining
and Exploration and 51% of Optimum Nekel Mining and Exploration. OCH
experienced accumulated and continuous financial losses in its operations due to
various reasons including the low contract rates with ESKOM, a decline in
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international coal prices, increased labour / operational costs and the weakened
exchange rate.
5.299. In 2011, OCH obtained a revolving loan facility from Rand Merchant Bank
(“RMB”) and Investec for capital and operating expenses. Nedbank joined the
Loan Consortium in 2014, providing additional financing. The total revolving loan
facility granted was R 2.95 billion. The Loan Consortium granted the facility on
condition that surety was supplied in the form of the entire share capital OCH and
its subsidiaries, all movable and immovable assets, mining and exploration rights.
The surety was held in a special purpose vehicle called Optrix Security Company
(Pty) Ltd (“Optrix”).
a) Glencore- 38.8%;
b) Employee Trust-9.93%;
c) Community Trust-9.3%;
d) Partners (Warrior Coal, Kwini Mining Investments, Micsan Investments,
Monkoe Coal Investments, Mobu Resources) - 41.32% combined; and
e) Unknown party-0.02%
5.302. Eskom, as mentioned above, Eskom is listed as a Schedule 2 entity (Major Public
Entity) of the PFMA
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5.303. Centaur Mining South Africa (Pty) Ltd (“Centaur”) is registered in South Africa and
is a subsidiary of Centaur Holdings Ltd which is registered in the UAE. In 2016,
Centaur signed a $100,000,000.00 (R1,500,000,000.00) revolving credit deal with
an anonymous UAE-based family to expand its mining and natural resources
projects in South Africa. Centaur also purchased the De Roodepoort coal mines in
Mpumalanga during 2016. Centaur is one of the entities which contributed to the
purchase price of OCH. The directors of Centaur are:
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5.307. Regiments Capital (Pty) Ltd (“Regiments”) (2004/023761/07) is one of the entities
which contributed to the purchase price of OCH. The directors of Regiments are:
a) Lithia Mveliso Nyhonyha (ID 5903155902083);
b) Magandheran Pillay (ID 6604025118087); and
c) Eric Anthony Wood (ID 6305225020087) is also one of the directors of TCP.
5.308. Albatime, as mentioned above Mr Moodley is the sole director of this entity and is
a special advisor to the Minister of Mineral Resources. Mr Moodley is married to
an Eskom board member Ms Viroshini Naidoo. Ms Viroshini Naidoo, in her
declaration of interests to Eskom dated 19 February 2016 and 31 May 2016, lists
herself as an employee of Albatime. Albatime contributed to the purchase price of
OCH.
5.309. The Bank of Baroda is an Indian state-owned banking and financial services
company headquartered in Vadodara (earlier known as Baroda) in Gujarat, India.
It is the second largest bank in India, next to State Bank of India. Its headquarters
is in Vadodara, it has a corporate office in the Bandra Kurla Complex in Mumbai.
Bank of Baroda is one of the Big Four banks of India, along with ICICI Bank, State
Bank of India and Punjab National Bank. The Bank of Baroda has a presence in
South Africa with branches in Gauteng and KwaZulu Natal, offering customers a
range of deposit plans a variety of transfer options and a global network.
5.310. The Loan Consortium consists collectively of Nedbank Limited, Rand Merchant
Bank Limited and Investec Limited which provided a revolving loan facility to OCH
to the accumulated value of R 2,948,479,663.00.
5.311. Werksmans Incorporated acted as the Escrow Agent to receive repayment of the
revolving loan facility and authors of the ‘Sale of Shares and Claims Agreement
between OCH and Tegeta and Glencore and Oakbay.
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5.312. The Business Rescue Practitioners consisted of two individuals. Piers Michael
Marsden (ID 7703055168084), a senior business rescue practitioner (“BRP”)
employed by Matuson & Associates (Pty) Ltd (2009/008967/07). Petrus Francois
van den Steen (ID 6811075024087), a senior BRP employed by V-Squared
Rescue Services (Pty) Ltd (2010/011731/07).
5.314. The Optimum Mine Rehabilitation Fund Trust and The Koornfontein Rehabilitation
Fund. These funds are established under the National Environmental
Management Act 107 of 1998 (“NEMA”).
5.316. In summary the individuals and/or entities which had an direct or indirect role in
this transaction is as follows:
Name of Individual/Entity Direct or Indirect role in acquisition of OCH
Tegeta Purchased all shares held by OCH.
OCH Sold all its shares to Tegeta.
Eskom Consented to the sale, released OCH from all its
guarantees and liabilities.
Centaur Contributed to the purchase price of OCH.
Trillian Capital Contributed to the purchase price of OCH.
Regiments Contributed to the purchase price of OCH.
Albatime Contributed to the purchase price of OCH. This entity
also has a direct relation to an Eskom board member,
Ms Viroshini Naidoo.
The Bank of Baroda Transferred final purchase price to the Werksmans
Escrow account on behalf of Tegeta, provided letter of
comfort to the Loan Consortium to give assurance that
the funds are available for the sale to proceed.
The Loan Consortium Provided a revolving loan facility to OCH to the
accumulated value of R 2,948,479,663.00. The Loan
Consortium were secured creditors once OCH and
OCM entered Business Rescue.
Werksmans Incorporated Acted as the Escrow Agent to receive repayment of
the revolving loan facility
The Business Rescue Practitioners Negotiated the sale of all shares held by OCH. As The
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5.317. There have been numerous speculations about how Tegeta raised R2.15 billion to
effect payment for OCH. Oakbay spokesperson Yolanda Zondo stated “that
speculation that ESKOM’s prepayment for the Arnot contract had facilitated the
funding of the purchase of Optimum was unfounded” and further stated that “The
funding was in place from December 2015”.
5.318. According to Mr Nazim Howa (“Mr Howa”) in the media, the funding of the
acquisition constituted own cash, structured debt and funding. Mr Howa refused to
disclose the details of the bank that assisted it to fund the deal claiming that if they
did, the bank and Tegeta would be prejudiced due to other banks closing certain
Oakbay accounts due to risks arising in money laundering and organised crime
laws.
5.319. Mr Howa’s statements created the impression that Tegeta’s accounts were closed.
However, account holder information confirms that at the time of the Tegeta deal,
Tegeta held accounts with Nedbank and First National Bank. The accounts were
active and were used for transaction purposes.
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5.320. In December 2015 the Loan consortium requested Tegeta to provide proof of
funding to consider its offer. Despite, at the time, having an existing established
banking relationship with two of the biggest banks in SA, Tegeta decided to use
the Bank of Baroda as its partner to execute the payment required to purchase
OCH.
5.321. On 04 March 2016 the Bank of Baroda issued an untitled letter to FirstRand Bank
limited setting out that Tegeta was its client and that it would affect payment of
R2.15 billion on certain conditions including obtaining by 30 March 2016.
5.322. All approvals and consents under the Mining and Petroleum Resources Act
Number 28 of 2002 required for share transfer, including but not limited to a
Section 11 approval.
5.323. This requirement read with consent requirements for lending or borrowing in
section 11(3) of the Mining and Petroleum Resources Act Number 28 of 2002
implied, that the Bank of Baroda was holding the right or interest in the mine as
security to grant a loan for the purposes of funding of financing the acquisition.
5.324. However, financial analysis confirms that the Bank of Baroda did not grant a loan
to the value of R2.15 billion to Tegeta to purchase OCH. Tegeta raised the funds
to pay the Loan Consortium from various sources. All funds were deposited via at
least thirty-two (32) Electronic Funds Transfers (“EFTs”) between 09 December
2015 and 14 April 2016 into the Bank of Baroda. The Bank of Baroda then effected
payment on behalf of Tegeta on 14 April 2016 into the Escrow Account held by
Werksmans Incorporated.
5.325. The conduct of the Bank of Baroda appears highly suspicious in light of the
wording of their letter and their tacit agreement for Tegeta to receive more than
R2.15 billion into its account in at least thirty-two (32) EFTs over four (4) months
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without raising suspicion or concern on the part of the bank. Accordingly, it is safe
to say that the frequency and amounts deposited should have attracted attention
and an investigation by other financial institutions anti-money laundering
departments due to money laundering risks based on the Financial Intelligence
Centre’s (“FIC’s”) guidance note concerning the reporting of suspicious and
unusual financial transactions.
5.326. In South Africa, the Bank of Baroda operates as a branch of a foreign bank. The
operations of the Bank of Baroda in South Africa are regulated and guided by the
‘Conditions for the conducting of the business of a bank by a foreign institution by
means of a branch in the Republic’.
5.327. In order to conduct the business of a bank, the Bank of Baroda utilises Nedbank’s
banking platform and infrastructure to offer banking services to its clients. The
Bank of Baroda uses a portfolio of domestic treasury accounts, business accounts
and investment accounts all held in the name of the Bank of Baroda to execute its
operations.
5.328. To give effect to its undertaking in the letter to make payments on behalf of Tegeta
in the purchasing of OCH, the Bank of Baroda utilised at least fourteen (14) of its
own accounts to structure the management of their service and effect final
payment.
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5.330. Business account number 145409532654 was used as the primary account to
receive all deposit from various individuals and entities. Analysis suggests that
monies were then moved from the business account to and between different
Domestic Treasury accounts with favourable interest rates for investment
purposes.
5.331. The Bank of Baroda Business account with account number 1454095326 is the
main deposit receiving account for the Bank of Baroda used by all clients to make
deposits. All deposits made in favour of Tegeta to raise the purchase price were
initially paid into this account.
5.332. Between 11 December 2015 and 14 April 2016, this account received thirty-two
(32) deposits amounting to R 2,478,639,309.00 for the benefit of Tegeta. These
deposits are set out in a timeline chart below.
5.333. The deposits into the business account originated from the following individuals
and entities:
Depositor Total Amount % Contributed
Aerohaven Trading R 19,200,000.00 0.77
AK Gupta R 24,900,000.00 1.0
Albatime Pty Ltd R 10,000,000.00 0.4
Annex Distribution R 22,000,000.00 0.89
Bank of Baroda (DBN branch) R 95,000,000.00 3.83
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5.334. On 14 April 2016, R 2,084,210,260.10 was transferred from the business account
to Werksmans to settle the Tegeta portion payable to the Loan Consortium. This
payment resulted in the Loan Consortium releasing all securities held to enable
transfer of ownership to take place. Detailed analysis of the business account
revealed that portions of the capital deposited as mentioned above were invested.
These investments are detailed below.
5.335. Between 09 December 2015 and 05 April 2016 at least R 1,390,000,000.00 was
invested in and between the Domestic Treasury accounts.
5.336. Between 22 December 2015 and 12 April 2016, all Domestic Treasury accounts
made transfers of the amounts they held for investment to the Domestic Treasury
account 037881044497/353.
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5.338. For the period 29 January 2016 to 13 April 2016, Eskom paid to Tegeta and
amount of R 1,161,953,248.41. An additional R 47,424,919.16 was paid on 26
April 2016. The table on the following page sets out the transactions:
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5.340. The total amount owed to the Loan Consortium was R 2,948,479,663.26. This
amount was settled as follows: The Bank of Baroda paid R 2,084,210,206.10 and
R 864,269,457.1660 was received from Glencore and OCH.
5.341. The afore-mentioned transactions including how the total Glencore/OCH payment
was structured is illustrated in detail below:
5.342. As part of the agreement with Glencore for the acquisition of OCH, Tegeta
acquired control over the Optimum Mine Rehabilitation Fund Trust and the
Koornfontein Rehabilitation Fund. The value of the Optimum Mine Rehabilitation
Fund Trust on 21 June 2016 was R 1,469,916,933.63 and the Koornfontein
Rehabilitation Fund on 23 May 2016 was R 280,000,000.00. The total value of the
Optimum Mine Rehabilitation Fund of R 1,461,265,534.24 was transferred on 21
June 2016 to the Bank of Baroda. The Koornfontein Rehabilitation Fund value was
transferred to the Bank of Baroda on 23 May 2016. It is calculated that the
combined value of the interest earned off of these funds at 7% is approximately R
122,500,000.00 per annum.
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5.343. It should be noted that according to the Financial Provision Regulations where an
applicant or holder of a right or permit makes use of the financial vehicle as
contemplated in regulation 8(1)(b), any interest earned on the deposit shall first be
used to defray bank charges in respect of that account and thereafter accumulate
and form part of the financial provision.
5.344. As part of the agreement for the acquisition of OCH by TEGETA it was required
that TEGETA take control over the Optimum Mine Rehabilitation Fund' and the
Koornfontein Rehabilitation Fund. The value of the Koomfontein Rehabilitation
Trust Fund (-KRTF') as at 23 May 2016 was R280.000.000.00 and the value of the
Optimum Mine Rehabilitation Trust Fund ("ORTF") as at 21 June 2016 was
R1.469.916.933.63.
5.345. The KRTF value of R280.000.00 was transferred to the Bank of Baroda on 23 May
2016, and the ORTF value of R1.469.916,933.63 was transferred to the Bank of
Baroda on 21 June 2016.
5.346. It should be noted, that the Department of Mineral Resources, authorised the
transfer of both the KRTF and ORTF to the Bank of Baroda.
5.347. On 24 May 2016 R280.000.000.00 was transferred from the KRTF account held at
FNB to the Bank of Baroda Main account 1454095326 held at Nedbank. On the
same day R282.000,000.00 was transferred from the Main account 1454095326 to
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5.348. The following is a summary of transactional activity after the KRTF fund was
transferred from the Main account to the Call account:
a) Between 23 May 2016 and 22 June 2016 the balance in the Call account
fluctuated drastically with five (5) credits to the value of R407,000,000.00 and
ten (10) debits amounting to R268,000,000.00. The balance in the Call
account as at 22 May 2016 was R201,000,000.00 thus a shortfall of
R81,000,000.00 on the KRTF fund investment value.
5.349. On 21 June 2016 R1,469.916.933.63 was transferred from the ORTF account held
at SBSA to the Bank of Baroda Main account 1454095326 held at Nedbank. On
22 June 2016 R1.480.000,000.00 was transferred from the Main account
1454095326 to a Bank of Baroda Domestic Treasury Call account 03-
7881044497-359. Prior to the transfer of the ORTF fund the balance In the Call
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account was R201,000,000.00 thus the total amount in the Call account after the
transfer of the ORTF fund was R1.681,000,000.00.
5.350. The following is a summary of transactional activity after the ORTF fund was
transferred from the Main account to the Call account:
a) Between 22 June 2016 and 16 September 2016 the balance in the Call
account fluctuated drastically with nineteen (19) credits to the value of
R2.109,000,000.00 and thirty-five (35) debits amounting to
R1,574.500,000.00. The balance in the Call account as at 16 September 2016
was R293.500.000.00 thus a shortfall of R1,186.500,000.00 on the ORTF fund
investment value.
b) The main reason for the decrease in fund value in the Call account is due to
transfers to the Main account and then further transfers of portions of the fund
into several other Call accounts and other accounts held in the name of
Baroda as follows: The ORTF fund of R 1,480,000,000.00 was received into
the Call account 03-7881044497-359 on 22 June 2016. On 24 June 2016 R
750.000,000.00 and R500,000.000.00 (R1,250,000,000.00) of this fund was
transferred to the Main account. A transfer of R 500,000,000.00 was then
made on the same day to the Bank of Baroda Durban Branch account
1314035746 held at Nedbank. The reference for this transaction in the Durban
branch account is -INTERBRANCH BORROWING REPYMENT`.
Transactional analysis of the Durban Branch account 1314035746 revealed
that no loan or borrowing amount to the value of R500.000,000.00 was ever
transferred, borrowed or loaned between the two accounts.
5.351. The remainder of the funds were transferred to call accounts as follows:
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5.354. It seems as if the Call accounts 03-7881044497-359 / 360 / 361 and 362 was
selected by the new owners of the funds and or the Bank of Baroda to receive and
invest the ORTF funds at preferential interest rates of 6.75% in the 359 account
and 9.02% in the remaining accounts.
5.355. It is clear and apparent that the funds were not ring fenced for the purposes of
investment and capital growth. The interest payments on all the investment
accounts were not reinvested and recapitalised but were transferred to the Baroda
Main account and utilised.
5.356. The R500m that was regarded as a borrowing repayment between the Baroda
Main account and the Baroda Durban Branch was only made possible because of
and as a result of the ORTF fund that was transferred to the Bank of Baroda Main
account.
5.357. Analysis of accounts revealed that no transaction to the value of the borrowing
amount of R500m was identified as a borrowed amount between the Baroda Main
account and the Baroda Durban Branch account since January 2012 to
September 2016; thus the description utilised on the bank statement referring to a
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repayment of funds borrowed combined with the value of the funds transferred is
irregular and unusual as no such funding was prevalent between the two accounts
prior to the receipt of the ORTF fund.
5.358. The conduct and subsequent transfers of the R500m in the Baroda Durban Branch
account is also deemed to be unusual and clearly indicates that the funds were not
ring fenced for investment purposes and was then transferred into another Call
account 03-7314502498-1069. In this regard, the splitting of the funds into several
call account reduced the investment return potential on the lump sum that was to
be invested if the funds were deemed to be for investment purposes.
5.359. I noted an article on 5 September 2016 styled “Gupta’s Oakbay sells Optimum
Coal export rights for R3.6bn” found in www.miningmx.com, . The article reads
inter alia as follows:
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Optimum holds a 7.5% stake in the RBCT which would be equivalent to an annual
export quota of six million tonnes (mt) of coal at a total annual terminal throughput
of 81mt. Optimum obtained that quota through a BEE deal when it was created as
a separately listed company by BHP Billiton as part of that group’s effort to meet
South African BEE requirements.
At the 2015 total export level of 75mt from the RBCT, the Optimum stake would
have amounted to 5.5mt worth $360m in revenues at current coal prices FOB
Richards Bay of around $65/t.
Oakbay subsidiary Tegeta Exploration bought Optimum in April for R2.15bn in a
deal approved by business rescue practitioners Piers Marsden and Peter van den
Steen and agreed to by former owner Glencore.
The sale of the export quota for $250m (about R3.6bn) would pay off the purchase
price and leave Tegeta/Oakbay with a R1.5bn profit.”
6.1 Whether any state functionary in any organ of state or other person
acted unlawfully, improperly or corruptly in connection with the
appointment or removal of Ministers and Boards of Directors of SOEs;
The Constitution
6.1.1 Section 96 (1) states as follows “Members of the Cabinet and Deputy Ministers
must act in accordance with a code of ethics prescribed by national legislation.”
6.1.2 Section 96 (2) further states : “Members of the Cabinet and Deputy Minister may
not-
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(b)act in any way that is inconsistent with their office, or expose themselves to any
situation involving the risk of a conflict between their official responsibilities and
private interests; or
(c)use their position or any information entrusted to them, to enrich themselves or
improperly benefit any other person.”
6.1.3 Section 2 of the Executive Members’ Ethics Act requires Cabinet members,
Deputy Ministers and Members of the Executive Council (MECs) to:
(i) at all times to act in good faith and in the best interest of good governance;
and
(v) exposing themselves to any situation involving the risk of a conflict between
their official responsibilities and their private interests;
(vi) using their position or any information entrusted to them, to enrich themselves
or improperly benefit any other person; and
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(vii) acting in a way that may compromise the credibility or integrity of their office or
of the government.
6.1.4 The Public Finance Management Act, 1999 (PFMA) gives effect to financial
management that places a greater implementation responsibility with managers
and makes them more accountable for their performance. It is left to the
Minister/MEC or the Executive (Cabinet) to resolve management failures. The
National Assembly and the provincial legislatures are vested with the power to
oversee the SOE and the Executive.
6.1.6 It is the PFMA read with Treasury Regulations and guidelines issued under it that
bring everything regarding the responsibilities that the Eskom Board were
required to comply with to escape a finding of maladministration or improper
conduct owing to tender and related financial irregularities as alleged in the
complaints investigated. The Board is recognised as the Accounting Authority in
terms of the PFMA.
(a) must ensure that that department, trading entity or constitutional institution has
and maintains:
(ii) …
(iv) a system for properly evaluating all major capital projects prior to a final
decision on the project;
(b) is responsible for the effective, efficient, economical and transparent use of the
resources of the department, trading entity or constitutional institution;
(i) collect all money due to the department, trading entity or constitutional
institution;
(d) is responsible for the management, including the safe-guarding and the
maintenance of the assets, and for the management of the liabilities, of the
department, trading entity or constitutional institution;
(e) …
(f) must settle all contractual obligations and pay all money owing, including
intergovernmental claims, within the prescribed or agreed period;
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(h) must take effective and appropriate disciplinary steps against any official in
the service of the department, trading entity or constitutional institution who:
(ii) commits an act which undermines the financial management and internal
control system of the department, trading entity or constitutional institution;
or
“(1) Every public entity must have an authority which must be accountable for the
purposes of this Act.
(2) If the public entity—
(a) has a board or other controlling body, that board or controlling body is the
accounting authority for that entity.”
(a) exercise the duty of utmost care to ensure reasonable protection of the assets
and records of the public entity;
2
Section 1 of the PFMA defines “Irregular expenditure” as “expenditure, other than unauthorised expenditure,
incurred in contravention of or that is not in accordance with a requirement of any applicable legislation”.
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(b) act with fidelity, honesty, integrity and in the best interests of the public entity in
managing the financial affairs of the public entity;
(c) on request, disclose to the executive authority responsible for that public entity
or the legislature to which the public entity is accountable, all material facts,
including those reasonably discoverable, which in any way may influence the
decisions or actions of the executive authority or that legislature; and
(d) seek, within the sphere of influence of that accounting authority, to prevent any
prejudice to the financial interests of the state.
(b) use the position or privileges of, or confidential information obtained as,
accounting authority or a member of an accounting authority, for personal gain
or to improperly benefit another person.
(a) disclose to the accounting authority any direct or indirect personal or private
business interest that that member or any spouse, partner or close family
member may have in any matter before the accounting authority; and
(b) withdraw from the proceedings of the accounting authority when that matter is
considered, unless the accounting authority decides that the member’s direct or
indirect interest in the matter is trivial or irrelevant.”
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6.1.10 King III applies to all entities regardless of the manner and form of incorporation
or establishment, including state-owned entities. Principles are drafted on the
basis that, if they are adhered to, any entity would have practiced good
governance. It is recommended that all entities disclose which principles and/or
practices they have decided not to apply or explain. This level of disclosure will
allow stakeholders to comment on and challenge the board to improve the level of
governance within an organisation.
6.1.11 Under Chapter 1, “Ethical Foundation”, states that the decisions and actions of
the board should be based on the following:
“Responsibility: The board should assume responsibility for the assets and actions of
the company and be willing to take corrective actions to keep the company on a
strategic path, that is ethical and sustainable.
Accountability: The board should be able to justify its decisions and actions to
shareholders and other stakeholders.
Fairness: The board should ensure that it gives fair consideration to the legitimate
interests and expectations of all stakeholders of the company.
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Competence: A director should have the knowledge and skills required for governing
a company effectively. This competence should be continually developed.
Courage: A director should have the courage to take the risks associated with
directing and controlling a successful, sustainable enterprise, and also the courage to
act with integrity in all board decisions and activities.”
6.1.13 Chapter 2 deals with the general responsibilities of the Board. Principle 2.1.4
states that “The board and its directors should act in the best interests of the
company”. It further states:
“15.The foundation of each decision should be intellectual honesty, based on all the
relevant facts. Objectively speaking, the decision should be a rational one
considering all relevant facts at the time.
16. The board has a reflective role with collective authority and decision-making as a
board, but directors carry individual responsibility.
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17. Directors of companies are appointed in terms of the constitution of the company
and in terms of the Act. Each director of a company has:
17.1 a duty to exercise the degree of care, skill and diligence that would be exercised
by a reasonably diligent individual who has:
17.1.1 the general knowledge, skill and experience that may reasonably be expected
of an individual carrying out the same functions as are carried out by a director in
relation to the company; and
17.1.2 the general knowledge, skill and experience of that director; and
17.2 a fiduciary duty to act in good faith and in a manner that the director reasonably
believes to be in the best interests of the company.
18. Directors should exercise objective judgement on the affairs of the company
independently from management, but with sufficient management information to
enable a proper and objective assessment to be made.
19. To be able to fulfill their legal duties directors should have unrestricted access to
all the company’s information, records, documents, property, management and staff
subject to a process established by the board.”
“21. Failure to perform these duties properly may render a director personally liable.
22. Individual directors or the board as a whole should be entitled, at the expense of
the company, to take independent professional advice in connection with their duties,
if they consider it necessary, but only after following a process agreed by the board.
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23. The personal interests of a director, or of people closely associated with that
director, should not take precedence over the interests of the company.
24. Any director who is appointed to the board as the representative of a party with a
substantial interest in the company, such as a major shareholder or a substantial
creditor, should recognise the potential for conflict. However, that director must
understand that the duty to act in the best interests of the company remains
paramount.
25. Certain conflicts of interest are fundamental and should be avoided. Other
conflicts (whether real or perceived) should be disclosed in good time and in full
detail to the board and then appropriately managed.”
a) The process to select and recommend a person to a SOE board is unclear and
undefined in government protocols, safe to say the process is not without
appointments that conflict personal and official interest.
c) It is for these reasons that when a Minister recommends a board, his/her mind must
be applied to select suitable individuals that would reduce the levels of conflicting
interest.
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d) It is important for the executive authority of the SOE (shareholder) and Cabinet to
consider whether there are conflicts that may influence the objective performance of
the Board and whether:
a) A board member might make a financial gain, or avoid a financial loss, at the
expense of the SOE.
c) There are Board members that receive financial or other incentives to favour the
interest of a particular party, over the interests of the SOE; and
d) If a member of the Board receives or will receive from a person other than the
SOE, an inducement in relation to a service provided to the SOE in the form of
money, goods or services, other than the salary the employer receives for his role
in the SOE.
e) If such scenarios arise, the shareholder (in this case the government and the
Minister of Public Enterprise) should take steps to mitigate the possible risks posed
to the SOE.
f) I further noted Eskom Minutes of the Board Tender Committee Meeting No 07/2014
in the Huvo Nkulu Boardroom, Megawatt Park on 12 August 2014 at 07:30. Page 12
of the minutes reads as follows: “Pegasus Risk Consulting had been requested to
provide probity checks on Optimum Coal Mine (Pty) Ltd (“Optimum Coal”). The
Auditors reported that they were unable to confirm the shareholding of the Deputy
President in one of the holding companies called Lexshell 849 (Pty) Limited. This
rendered their finding inconclusive. It was submitted that the purpose of probity
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checks was that there should not be real or perceived bias. The fact that Eskom had
a contract with a company in which the country’s Deputy President was a
shareholders may lead to perceived bias, but it was submitted that there was an
existing contract between Optimum and Eskom, which would run until 2018. This
contract had been concluded prior to the Deputy President assuming that role but
the perception in the mind of the public would have to be managed.”
g) At the time of the above mentioned board meeting, the Eskom board was as
follows:
Name Position
Mr Zola Tsotsi Chairperson
Mr Collin M Matjila Acting Chief Executive
Ms Tsholofelo Molefe Finance Director
Ms Queendy Gungubele Independent Non-Executive Director
Dr Bernard Lewis Fanaroff Independent Non-Executive Director
Ms Neo Lesela Independent Non-Executive Director
Mr Mafika Mkhwanazi Independent Non-Executive Director
Mr Phenyane Sedibe Independent Non-Executive Director
Ms Lily Zondo Independent Non-Executive Director
Ms Chwayita Mabude Independent Non-Executive Director
Ms Yasmin Masithela Independent Non-Executive Director
Ms Bajabulie Luthuli Independent Non-Executive Director
Dr Boni Mehlomakulu Independent Non-Executive Director
i) The Board of Eskom was recommended by Minister Lynn Brown and appointed by
Cabinet during September 2015. The Eskom Board at the time of the purchase of
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j) These individuals constituted the governing body of Eskom. They had absolute
responsibility for the performance of the SOE and is fully accountable for the
performance of the SOE. Governance principles regarding the role and
responsibility of SOE Boards are contained in the PFMA and the Protocol on
Corporate Governance.
k) The following can be noted of the Board at Eskom when certain transactions were
included:
Ltd
B I T Information Technology 2003/022444/07 Mr Pamensky was a previous director.
(Pty) Ltd Kubentheran Moodley (“Mr Moodley”) is
also a director of this entity and is the
spouse3 of ESKOM board member Ms
Viroshini Naidoo.
Mr Moodley is a special advisor to the
Minister of Mineral Resources and is the
sole director of Albatime (Pty) Ltd
(2009/0211474/07)(“Albatime”).
ALBATIME is one of the entities which
contributed to the purchase price of OCH.
c) Public records confirm that Mr Pamensky has direct business interests in ORE
and Shiva Uranium for which he received economic benefit. Mr Pamensky is also
a member of Eskom’s Board. By virtue of officio function and role in Eskom he
would have or could have access to privilege or sensitive information regarding
OCH and various Eskom Contracts. Such information coupled with a personal
economic interest would give Tegeta an unfair advantage over other interested
buyers. It would be very important to understand the role of this individual in this
transaction in light of a high degree of irregularities that appears to have occurred
in Eskom.
f) Mr Romeo Khumalo (“Mr Khumalo”) resigned from the board of Eskom in April
2016. Mr Khumalo and Mr Essa were directors of Ujiri Technologies (Pty) Ltd
(2011/010963/07). Mr Khumalo has since resigned from the Board of Eskom.
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h) Eskom stated the following with regards to the above mentioned potential
conflicts of interest:
b) Mr Pamensky was not part of the Board Tender Committee and thus, could
not have influenced any decision in respect of Tegeta.
e) Ms Cassim was not a member of the Board Tender Committee and thus, her
alleged conflict is of no consequence.
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l) What is evident from the above is that certain Board members of Eskom has links to
entities and/or individuals who contract regularly with Eskom. Furthermore, one of
the Board members (Ms Naidoo), works for a company who contributed to the
purchase price of OCH.
n) Mr Pamensky was also present during a board meeting on 23 April 2015, in which
the draft agreement with OCM/OCH was not implemented by the board and referred
to Mr Molefe for decision. This agreement was a pivotal point with regards
p) I noted the Board Tender Committee meeting 7 March 2016 in which both Ms
Carrim and Ms D Naidoo were present. At said meeting, decisions were made
regarding a mandate to negotiate coal supply agreements for supply of coal to Arnot
power station. The Eskom board noted that Ms D Naidoo’s spouse was no longer in
the employ of the Department of Mineral Resources and thus the potential conflict
no longer existed. However, Ms D Naidoo lists herself as an employee of Albatime
which is a company in which her husband is a sole director in. Albatime is a
company which contributed to the purchase of all shares in OCH with Tegeta.
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r) Furthermore, even if Board members are not present during said meetings, they are
still privy to minutes of meetings as well as other commercially sensitive information
which would definitely give certain individuals and/or entities an advantage.
t) Ms Naidoo, did not declare her spouse’s involvement in the purchase of all shares
in OCH. This represent a serious conflict.
u) In light of the above, and taking into account the circumstances under which the
prepayment was awarded to Tegeta, it appears that the Board of Eskom has not
sufficiently managed its conflicts. Even if the conflicts were declared the actual or
perceived bias, which is evident through the identified links with individuals, cannot
be ignored in this matter.
w) When adopting the Board at Eskom and appointing them in during the course of
2014 and 2015, it is required that due regard needs to be given to the conflicts
identified, even if the conflicts arose after their appointment, when conflicts do arise
it should, cognisance needs to be taken of it,
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y) The following can be noted with regards to Mr Molefe and Mr Ajay Gupta:
z) The above illustrates that between the period 2 August 2015 and 22 March 2016 Mr
Molefe has called Mr Ajay Gupta a total of 44 times and Mr Ajay Gupta has called
Mr Molefe a total of 14 times.
aa) Between 23 March 2016 and 30 April 2016, Ms Ragavan made 11 calls to Mr
Molefe and sent 4 text messages to him. Of the calls made, 7 were made between
9 April 2016 and 12 April 2016. This includes one call made on 11 April 2016.
bb) The following diagram depicts the number of instances where we can place Mr
Molefe within the Saxonworld area:
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cc) For the period 5 August 2015 to 17 November 2015, Mr Molefe can be placed in the
Saxonworld area on 19 occasions.
dd) The diagram below, further depicts instances of contact between Mr Molefe, Mr
Howa, Mr Rajesh Kumar Gupta and Mr Atul Gupta:
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ee) The above mentioned diagrams show a distinct line of communication between Mr
Molefe of Eskom, the Gupta family and directors of their companies in the form of
Ms Ragavan and Mr Howa. These links cannot be ignored as Mr Molefe did not
declare his relationship with the Gupta family.
ff) An important point to note, is that Ms Ragavan called Mr Molefe on the 11 April
2016, which is the same day when the prepayment was granted to Tegeta by
Eskom.
6.2. Whether any state functionary in any organ of state or other person
acted unlawfully, improperly or corruptly in connection with the award
of state contracts or tenders to Gupta linked companies or persons;
The Constitution
a) Section 96 (1) states as follows “Members of the Cabinet and Deputy Ministers
must act in accordance with a code of ethics prescribed by national legislation.”
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b) Section 96 (2) further states : “Members of the Cabinet and Deputy Minister may
not-
(b)act in any way that is inconsistent with their office, or expose themselves to any
situation involving the risk of a conflict between their official responsibilities and
private interests; or
(c)use their position or any information entrusted to them, to enrich themselves or
improperly benefit any other person.”
c) Section 195 (1) of the Constitution sets out the basic values and principles
governing public administration. These principles provide, in relevant part, that:
“(1) Public administration must be governed by the democratic values and principles
enshrined in the Constitution, including the following principles:
(a) A high standard of professional ethics must be promoted and maintained.
…
(d) Services must be provided impartially, fairly, equitably and without bias.
…
(f) Public administration must be accountable.”
(2) Subsection ( 1 ) does not prevent the organs of state or institutions referred to in
that subsection from implementing a procurement policy providing for-
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e) Section 2 of the Executive Members’ Ethics Act requires Cabinet members, Deputy
Ministers and Members of the Executive Council (MECs) to:
(viii) at all times to act in good faith and in the best interest of good governance;
and
(xii) exposing themselves to any situation involving the risk of a conflict between
their official responsibilities and their private interests;
(xiii) using their position or any information entrusted to them, to enrich themselves
or improperly benefit any other person; and
(xiv) acting in a way that may compromise the credibility or integrity of their office or
of the government.
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f) The Public Finance Management Act, 1999 (PFMA) gives effect to financial
management that places a greater implementation responsibility with managers and
makes them more accountable for their performance. It is left to the Minister/MEC or
the Executive (Cabinet) to resolve management failures. The National Assembly
and the provincial legislatures are vested with the power to oversee the SOE and
the Executive.
h) It is the PFMA read with Treasury Regulations and guidelines issued under it that
bring everything regarding the responsibilities that the Eskom Board were required
to comply with to escape a finding of maladministration or improper conduct owing
to tender and related financial irregularities as alleged in the complaints
investigated. The Board is recognised as the Accounting Authority in terms of the
PFMA.
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(e) exercise the duty of utmost care to ensure reasonable protection of the assets
and records of the public entity;
(f) act with fidelity, honesty, integrity and in the best interests of the public entity in
managing the financial affairs of the public entity;
(g) on request, disclose to the executive authority responsible for that public entity
or the legislature to which the public entity is accountable, all material facts,
including those reasonably discoverable, which in any way may influence the
decisions or actions of the executive authority or that legislature; and
(h) seek, within the sphere of influence of that accounting authority, to prevent any
prejudice to the financial interests of the state.
(d) use the position or privileges of, or confidential information obtained as,
accounting authority or a member of an accounting authority, for personal gain
or to improperly benefit another person.
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(c) disclose to the accounting authority any direct or indirect personal or private
business interest that that member or any spouse, partner or close family
member may have in any matter before the accounting authority; and
(d) withdraw from the proceedings of the accounting authority when that matter is
considered, unless the accounting authority decides that the member’s direct or
indirect interest in the matter is trivial or irrelevant.”
(ii) prevent irregular expenditure, fruitless and wasteful expenditure, losses resulting
from criminal conduct, and expenditure not complying with the operational policies
of the public entity
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Minister Zwane
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as though his conduct is not in line with section 2 of the Executive Members Ethics
Act.
p) If Minister Zwane travelled in his official capacity to support Tegeta’s bid to buy the
mine his conduct would give Tegeta an unfair advantage over other interested
buyers. Further, it is potentially unlawful for the Minister to use his official position of
authority to unfairly and unduly influence a contract for a friend or in this instance
his boss’s son at the expense of the State. This scenario would be further
complicated if his actions were sanctioned by the President. This scenario will be
investigated further in the next phase of the investigation.
Eskom
q) The Eskom Board has a fiduciary obligation to uphold the values enshrined in
section 217 of Constitution as well as the PFMA.
r) Eskom, in terms of section 50 of the PFMA has a duty to act in the best interests of
the public at all times. Eskom had released numerous statements regarding the
awarding of contracts to Tegeta, Eskom has stated on 11 June 2016 that “Tegeta
indicated that the required coal quality can only be sourced if they divert their export
quality coal to supply Eskom. In addition, there was an indication that additional
equipment was needed to reach the required tempo of coal delivery to Eskom that
would mitigate the shortfall. These factors led Tegeta to request a prepayment from
Eskom.”
s) After evaluating the responses received from Eskom, it is clear that they do have
the requisite policies in place which provide for a prepayment of coal to be made.
This is in line with various agreements put in place by Eskom after the energy crisis
in 2008.
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t) While the Board may have awarded the contracts in line with Eskom policy and
procedure, the ensuing paragraphs need to be taken into account.
u) Eskom had previously done extensive due diligence on OCM which formed part of
the Co-Operation agreement, they were aware of exact production outputs for coal
and the price of coal being supplied by OCM. At the time of concluding the contract
with Tegeta for the supply of coal to Arnot power station, Eskom was fully aware
that the sale of all shares in OCH to Tegeta had not gone through. It appears to not
make commercial sense for Eskom to contract with Tegeta for a higher price of coal
knowing exactly where the coal was being received from.
As part of the sale of shares agreement with OCH by the business rescue
practitioner, OCH had to be substituted by Tegeta to the coal supply agreement
between OCM and Eskom.
w) The responses given by Eskom appear to not make commercial sense as it appears
that the coal could have been sourced directly from OCM at a reduced rate.
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x) Eskom was aware that Tegeta was receiving coal from OCM at a rate of R18.68/GJ.
Yet still contracted with Tegeta at an initial rate of R22.00/GJ. It is unclear why
Eskom chose to contract with Tegeta and not OCM directly. It should be noted that
when Eskom concluded contracts with Tegeta to supply Arnot power station, OCM
was still owned by OCH and controlled by the BRP’s.
“9. Tegeta indicated that the required coal quality can only be sourced if they divert
their export quality coal to supply Eskom. In addition, there was an indication
that additional equipment was needed to reach the required tempo of coal
delivery to Eskom that would mitigate the shortfall. These factors led Tegeta to
request a prepayment from Eskom.
10. Umsimbithi indicated that they are able to supply additional coal with no
additional resource requirements.
11. Eskom concluded a contract with Tegeta to supply 1 250 000 tons of coal from
April to September 2016 and have approval to extend the contract with
Umsimbithi to supply 540 000 tons from June to September 2016. These two
contracts in our view sufficiently address the winter shortfall and security of
supply risk relating to coal procurement.
12. The cost of coal from Tegeta was R19.70/GJ and the cost from Umsimbithi
was R18.50/GJ, the price difference being explained by the higher rejection
level requirement for Tegeta. In both instances we would like to point out that
the cost is far lower than the cost of approximately R51/GJ from the original
Exxaro Arnot colliery that expired in December 2015.
13. The Tegeta prepayment request was considered on its merits, the current
security of supply risk circumstance and previous transactions of a similar
nature which is discussed below.
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z) The discount given appears to be somewhat misleading, both Eskom and Tegeta
were aware that Tegeta was sourcing coal from OCM at the rate of 18.68/GJ.
Therefore, Tegeta was not actually giving any material discount as they were still
charging Eskom 19.69/GJ.
aa) I noted numerous documents in which Eskom is viewed in the light of being astute
negotiators of contracts for the best interest of the SOE. It appears as though
Eskom should have contracted directly with OCM for the supply of coal to Arnot
power station.
bb) It should be noted that at the time of the approval of the prepayment which was
done on 11 April 2016, OCM was still owned by OCH and managed by the BRP’s.
cc) I noted that the Board Tender Committee board members are are Mr Z Khoza, Ms
C Mabude, Ms N Carrim and Ms D Naidoo and that the Special Board Tender
Committee Meeting on 11 April 2016 at 21h00 which approved the prepayment to
the amount of R 659,558,079.38 was also approved by these Board members.
dd) The obligations of the BRP’s only extinguished on 31 August 2016. Up until that
point OCM was still run by the BRP’s.
ee) Financial analysis of for the period 29 January 2016 to 13 April 2016, reveals that
Eskom paid to Tegeta and amount of R 1,161,953,248.41. An additional
R47,424,919.16 was paid on 26 April 2016. The table on the following page sets
out the transactions:
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gg) The BRP’s further submitted a statement in terms of section 34 of PRECCA. In that
statement the BRP’s stated that on 11 April 2016 Tegeta approached them and
stated that they were R600 million short in respect of the purchase price of all
shares in OCH. This statement was confirmed by the Loan Consortium as well as
Glencore, in that they were all approached by the BRP’s on the 11 April 2016 in
which it was stated that Tegeta was R600 million short of the purchase price.
hh) The BRP’s further state in their section 34 statement that OCM never received the
prepayment and that OCM provides a 30 day payment term to Tegeta.
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ii) It should be further noted that the BRP’s, on behalf of OCM, sent a letter to Tegeta
in which it was stated that an amount of R 148,027,783.91 is payable to OCM by
Tegeta as at 31 July 2016. In an additional letter sent on 23 August 2016, the BRP’s
on behalf of Optimum state that an amount of R 289,842,376.00, is owning to OCM
as at 31 August 2016.
jj) It appears that the conduct of the Eskom board was solely to the benefit of Tegeta
in awarding contracts to them and in doing so funded the purchase of OCH and is
thus in severe violation of the PFMA.
6.3. Whether any state functionary in any organ of state or other person acted
unlawfully, improperly or corruptly in connection with the extension of state
provided business financing facilities to Gupta linked companies or persons;
a) In making my determination on the conduct and the standard that should have been
complied with, I utilised the following legislative prescripts and common law, in
addition to the legislation quoted above.
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(2) The consent referred to in subsection (1) must be granted if the cessionary,
transferee, lessee, sublessee, assignee or the person to whom the right will be
alienated or disposed of—
(a) is capable of carrying out and complying with the obligations and the terms
and conditions of the right in question; and
(b) satisfies the requirements contemplated in section 17 or 23, as the case may
be.
“(1) An applicant for a prospecting right, mining right or mining permit must, before
the Minister approves the environmental management plan or environmental
management programme in terms of section 39(4), make the prescribed
financial provision for the rehabilitation or management of negative
environmental impacts.
(2) If the holder of a prospecting right, mining right or mining permit fails to
rehabilitate or manage, or is unable to undertake such rehabilitation or to
manage any negative impact on the environment, the Minister may, upon
written notice to such holder, use all or part of the financial provision
contemplated in subsection (1) to rehabilitate or manage the negative
environmental impact in question.
(3) The holder of a prospecting right, mining right or mining permit must annually
assess his or her environmental liability and increase his or her financial
provision to the satisfaction of the Minister.
(4) If the Minister is not satisfied with the assessment and financial provision
contemplated in this section, the Minister may appoint an independent assessor
to conduct the assessment and determine the financial provision.
(5) The requirement to maintain and retain the financial provision remains in force
until the Minister issues a certificate in terms of section 43 to such holder, but
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the Minister may retain such portion of the financial provision as may be
required to rehabilitate the closed mining or prospecting operation in respect of
latent or residual environmental impacts.”
d) Section 98 deals with offences under the act. Section 98 reads as follows: “Any
person is guilty of an offence if he or she—
(a) contravenes or fails to comply with—
(i) section 5(4), 20(2), 19 or 28;
(ii) section 92, 94 or 95;
(iii) section 38(1)(c);
(iv) section 42(1) or (2);
(v) section 44;
(vi) any directive, notice, suspension, order, instruction or condition issued,
given or determined in terms of this Act;
(vii) any direction contemplated in section 29; or
(viii) any other provision of this Act;
(b) submits inaccurate, incorrect or misleading information in connection with any
matter required to be submitted under this Act; or
(c) fails to provide a written notice or consult with the Minister in terms of section
26(3).
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(c) in the case of an offence referred to in section 98(a)(iii) to a fine not exceeding
R500 000 or to imprisonment for a period not exceeding 10 years or to both
such fine and such imprisonment;
(d) in the case of an offence referred to in section 98(a)(v), to the penalty that
may be imposed in a magistrate’s court for a similar offence;
(e) in the case of an offence referred to in section 98(a)(vi) and (vii), to a fine not
exceeding R10 000;
(f) in the case of an offence referred to in section 98(c), to a fine not exceeding
R500 000 for each day that such person persists in contravention of the said
provisions;
(g) in the case of any conviction of an offence in terms of this Act for which no
penalty is expressly determined, to a fine or to imprisonment for a period not
exceeding six months or to both a fine and such imprisonment; and
(2) Despite anything to the contrary in any other law, a magistrate’s court may
impose any penalty provided for in this Act.”
f) Section 37A deals with the “Closure rehabilitation or trust”. It reads as follows:
“1) For purposes of determining the taxable income derived by a person from
carrying on any trade, any cash paid during any year of assessment
commencing on or after 2 November 2006 by that person to a company or
trust shall be deducted from that person’s income if—
(a) the sole object of that company or trust is to apply its property solely for
rehabilitation upon premature closure, decommissioning and final
closure, and post closure coverage of any latent and residual
environmental impacts on the area covered in terms of any permit, right,
reservation or permission contemplated in paragraph (d)(i)(aa) to restore
one or more areas to their natural or predetermined state, or to a land
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(2) The company or trust contemplated in subsection (1) may only hold—
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(iv) mutual bank as regulated in terms of the Mutual Banks Act, 1993
(Act No. 124 of 1993);
(b) financial instruments of a listed company unless—
(i) those financial instruments are issued by a person contemplated in
subsection (1)(d); or
(ii) those financial instruments are issued by a person that is a
connected person in relation to a person contemplated in subsection
(1)(d);
(c) financial instruments issued by any sphere of government in the
Republic; or
(d) any other investments which were held by that company or trust before
18 November 2003.
(3) To the extent that the Cabinet member responsible for mineral resources is
satisfied that all of the areas in terms of any permit, right, reservation or
permission contemplated in subsection (1)(d)(i)(aa) that have been
rehabilitated as contemplated in subsection (1)(a), the company or trust in
respect of those areas must be wound-up or liquidated and its assets
remaining after the satisfaction of its liabilities must be transferred to—
(4) If the Cabinet member responsible for mineral resources is satisfied that a
company or trust as contemplated in subsection (1)(a)—
(a) will be able to satisfy all of the liabilities of that company or trust; and
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(b) such company or trust has sufficient assets to rehabilitate and restore, as
contemplated in subsection (1)(a), all areas to which any permit, right,
reservation or permission contemplated in subsection (1)(d)(i)(aa)
relates, as the case may be,
that company or trust may transfer assets not required for purposes of
paragraphs (a) and (b) to another company or trust established in terms of this
section as approved by the Commissioner.
(5)
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the extent that other property is (directly or indirectly) derived from cash
paid by that person to that company or trust.
(7) If the company or trust contemplated in this section contravenes any provision
of subsection (1)(a) during any year of assessment by distributing property
from that company or trust for a purpose other than—
(a) include an amount equal to twice the market value of all of the property
held in that company or trust on the date of that contravention as taxable
income; and
(b) include the amount contemplated in paragraph (a) in the income of the
person contemplated in subsection (1)(d) for the year of assessment of
that person during which the Commissioner is satisfied the contravention
occurred to the extent that property is (directly or indirectly) derived from
cash paid by that person to that company or trust:
Provided that the Commissioner may reduce the amount of taxable income
contemplated under this subsection as the Commissioner may think fit.”
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(b) Any cost in respect of such assessment must be borne by the holder in
question.
(5) The requirement to maintain and retain the financial provision contemplated in
this section remains in force notwithstanding the issuing of a closure certificate
by the Minister responsible for mineral resources in terms of the Mineral and
Petroleum Resources Development Act, 2002 to the holder or owner
concerned and the Minister responsible for mineral resources may retain such
portion of the financial provision as may be required to rehabilitate the closed
mining or prospecting operation in respect of latent, residual or any other
environmental impacts, including the pumping of polluted or extraneous water,
for a prescribed period.
(Section 24P(5) substituted by section 7(c) of Act 25 of 2014)
(6) The Insolvency Act, 1936 (Act No. 24 of 1936), does not apply to any form of
financial provision contemplated in subsection (1) and all amounts arising from
that provision.
(7) The Minister, or an MEC in concurrence with the Minister, may in writing make
subsections (1) to (6) with the changes required by the context applicable to
any other application in terms of this Act.
(Section 24P inserted by section 8 of Act 62 of 2008)”
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i) Section 18 and 19 deals with the offences as well as the penalties under the
Regulations
“18. (1) An applicant or holder of a right or permit commits an offence if that
person contravenes or fails to comply with regulation 4, 5, 6, 7, 9(1), 10,
11, 12(5), 13 or 16(6) of these Regulations.
(2) A holder commits an offence if that person contravenes or fails to comply
with regulation 17(5), 17(11), 17(12), 17(14), 17(16), 17(17) or 17(19) of
these Regulations.
j) There has been much speculation as to how Tegeta sources the funds needed for
the purchase of all shares in OCH.
k) Mr Howa, on behalf of Tegeta in an interview with Carte Blanche, has stated that
the funds were sourced using a mixture of debt and their own funding. Mr further
stated that the prepayment was used to service the Arnot contract, and that drag
lines were decommissioned in June and the cost to restart these drag lines is R1
billion.
m) What is furthermore apparent, is that given the timing of the prepayment which
was approved on 11 April 2016, it appears highly improbable that some, if not all,
of the Eskom Board who approved the payment had no knowledge of the true
nature of the payment. The prepayment was approved after a Special Board
Tender Committee meeting on 11 April 2016 at 21:00. The 11 April 2016 is the
same day that Tegeta told the BRP’s that they were short R600 million in relation
to the purchase price of R2.15 billion which needed to be paid on 14 April 2016.
This statement was confirmed by the Loan Consortium as well as Glencore.
n) It accordingly appears that the urgency of the Special Board Tender Committee
meeting on 11 April 2016 at 21:00 was solely for the purposes of benefiting Tegeta
in order to fund the purchase of all shares in OCH. The Eskom Board, needed to
act fairly and impartially when doing business on behalf of Eskom and had a duty
to uphold the principles of section 50 and section 51 of the PFMA as well as
section 217 of the Constitution. Eskom appears to have known the exact position
of OCM, both financially and in terms of production output, it is further apparent
that Eskom should have known that a prepayment was not needed by Tegeta.
o) Mr Molefe and Mr Singh stated the following with regards to the Contract awarded
to Tegeta and the prepayment:
“On 8 April 2016 Tegeta made an offer to supply additional coal for the Amot
Power Station from the Optimum Coal Mine over a period of five months. This
offer was made subject to a prepayment for the coal.-- The purpose of prepayment
was to secure coal for Eskom, particularly of the high quality that was required by
Arnot Power Station. To ensure Tegeta's ability to meet the production
requirements for both Hendrina and Arnot in the short term, prepayment was
requested. Tegeta indicated that the prepayment would enable them to
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operationalise plant and equipment that had been placed on 'care and
maintenance' during the shutting of the export component of the mine.
The 7-day payment terms was a prerequisite by the BRP to Tegeta for the supply
of coal to the Arnot Power Station from the Optimum Colliery.”
p) Eskom appears to have been fully aware of the payment terms Tegeta had with
OCM for the supply of coal to Arnot Power Station, however, Tegeta was made on
a 7 day basis and OCM was in turn paid my Tegeta on a 30 day basis. This further
appears to outline the need of Tegeta to source funds on an urgent basis in order
to fund their purchase of all shares in OCH.
q) Financial analysis of for the period 29 January 2016 to 13 April 2016, reveals that
Eskom paid to Tegeta and amount of R 1,161,953,248.41. An additional
R47,424,919.16 was paid on 26 April 2016. The table on the following page sets
out the transactions:
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u) The BRP’s further state in their section 34 statement that OCM never received the
prepayment and that OCM provides a 30 day payment term to Tegeta.
v) It should be further noted that the BRP’s, on behalf of OCM, sent a letter to Tegeta
in which it was stated that an amount of R 148,027,783.91 is payable to OCM by
Tegeta as at 31 July 2016. In an additional letter sent on 23 August 2016, the BRP’s
on behalf of Optimum state that an amount of R 289,842,376.00, is owning to OCM
as at 31 August 2016.
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production requirements at OCM, and was thus made in vain and it appears that it
could have been avoided by Eskom had they exercised reasonable case.
y) In light of the above, it appears that the conduct of the Eskom board was solely to
the benefit of Tegeta in awarding contracts to them and thus it appears to be
inconsistent with the PFMA.
z) The conduct of the Eskom Board further does not seem to be in line with section 4
of PRECCA.
aa) It should further be noted that the shareholders of Tegeta all pledged their shares to
Eskom as guarantee for the prepayment to be made. The shareholders thus, all
consented to the transaction and appears to have been fully aware of the reason for
the transaction. At the time the shareholders were:
cc) Typical questions that are raised concerning the administration of these funds
surround issues of when the rehabilitation fund is no longer needed, or has fulfilled
its purpose and has surplus assets. In addition, the tax Implications of amending
or terminating a rehabilitation fund are also of importance.
dd) Section 37A of the Act was introduced in 2006 - it grants a deduction to mining
companies that pay cash into a rehabilitation fund which complies with section
37A. This section imposes strict rules in respect of rehabilitation funds, for
example:
a) The rehabilitation fund may only apply its assets for prescribed rehabilitation
purposes once the rehabilitation has been completed to the satisfaction of the
Minister of Minerals Resources (the Minister) Thereafter, the rehabilitation fund
is obliged to transfer its assets to a similar company or trust, or to an account of
a company or trust prescribed by the Minister and approved by the
Commissioner for the South African Revenue Service (the Commissioner); and
should the rehabilitation fund meet all its liabilities and have sufficient assets to
perform the required rehabilitation, it may transfer any surplus assets to another
company or trust approved by the Commissioner.
ee) Section 37A does not appear to contemplate a situation where the rehabilitation
fund has completed its rehabilitation work and has surplus assets, and the mining
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company does not have similar funds to which the assets of the rehabilitation fund
can be transferred, or where the mining company wants to transfer the assets of
the rehabilitation fund to a similar fund, for value.
ff) Non-compliance with section 37A carries penalties - income tax is imposed on the
mining company and/or the rehabilitation fund, if section 37A is contravened. In
some instances, the South African Revenue Service (SARS) has a discretion to
reduce the income tax so imposed.
gg) If the rehabilitation fund distributes its property for purposes other than the
prescribed rehabilitation, section 37A(7) states that an amount equal to the market
value of the property that was so distributed, is deemed to be taxable income of
the rehabilitation fund for that year of assessment. The inclusion of the market
value of the property so distributed is peremptory and SARS has no discretion to
waive the inclusion.
hh) Section 37A(8) is a catch all provision that applies to any contravention of section
37A. Where section 37A has been contravened in any manner, the Commissioner
may include an amount equal to twice the market value of all property held in the
rehabilitation fund, on the date of contravention, in the rehabilitation fund's taxable
income, and include the amount that the mining company contributed to the
rehabilitation fund (and claimed a tax deduction for), in the mining company's
income, to the extent that the property in the rehabilitation fund was directly or
indirectly derived from cash paid to the rehabilitation fund.
ii) Both the rehabilitation fund and the mining company pay tax where section 37A(8)
is triggered, but the Commissioner has a discretion to reduce the taxable income
as he deems fit. An inclusion in income tax in terms of section 37A(7) is not
discretionary, whereas the Commissioner has a discretion in respect of imposition
of tax in terms of section 37A(8).
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jj) These provisions of the Act raise questions to be taken into account if a mining
company wants to terminate or amend the objects and rules of the rehabilitation
fund (for example to allow for the transfer of funds to a fund which is not a section
37A fund). Firstly, the additional tax that will be triggered by any contravention or
non-compliance with section 37A, has to be taken into account. Also, the contents
of the constitutional documents of the rehabilitation fund (which is normally a
company or a trust) will probably have to be amended. Typically the trust deed or
company's articles of association or memorandum of incorporation would have
been drafted to comply with section 37A, and these documents may have to be
amended to change the objects of the rehabilitation fund and the purpose for
which the rehabilitation fund was established.
kk) The directors or trustees of a rehabilitation fund are obliged to act in accordance
with the constitutional documents in order to legally effect an amendment or
termination. If the rehabilitation fund is a trust, for example, the trustees will have
to take care to act in terms of the trust deed. This principle was entrenched in the
authoritative South African case on the law of trusts, Land and Agricultural
Development Bank of SA v Parker and others [200414 All SA 261 (SCA), which
provides commentary on the invalidity of trustees' actions which are not in line with
the provisions of the trust instrument: it the trust] vests in the trustees, and must be
administered by them - and it is only through the trustees, specified as in the trust
instrument, that the trust can act. Who the trustees are, their number, how they are
appointed, and under what circumstances they have power to bind the trust estate
are matters defined in the trust deed, which is the trust's constitutive charter.
Outside its provisions the trust estate cannot be bound."
ll) Since the constitutional documents of the rehabilitation fund would have been
drafted to comply with section 37A, it can be assumed that any amendment or
termination of the rehabilitation fund needs to be made with the approval of the
Commissioner. Questions arise about whether the Commissioner will consent to
an amendment of rehabilitation funds. The Commissioner should not be legally
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mm) Any amendment of the constitutional documents which places the objects and
assets outside the ambit of section 37A of the Act, could result in a contravention
of sections 37A(3) and (4) (which specify to whom assets can be transferred to
upon termination or closure) and the trustees or directors will have to take the tax
and/or penalties imposed by section 37A, into account.
nn) On a practical level, the following should be taken into account in respect of
amendments to section 37A rehabilitation funds:
b) Furthermore, it is likely that the Commissioner may request that the assets in
the rehabilitation fund be transferred to a similar account specified by the
Minister (as contemplated In section 37A(3b) of the Act). However, if the mining
company is not prepared to agree to such a transfer, it is unlikely that SARS
can insist on this. It would be prudent to approach the Commissioner for prior
approval to amend the constitutional documents of the rehabilitation fund and
for a decision on how he will exercise his discretion in terms of section 37A(8),
before making a final decision about the assets in the rehabilitation fund.
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oo) The primary shareholder in Mining Rehabilitation Funds ('MRFs') is the Minister of
Mineral Resources. The Minister is empowered to perform statutory functions
linked to the management of the MRFs. The responsibility to manage the MRFs is
critical to ensuring that environmental rehabilitation is conducted after the closure
of a mine and that adequate funding has been capitalised and secured in term of
Section 37A of the Income Tax Act to ensure that the respective mine has the
finances available to conduct environmental rehabilitation.
qq) Section 41 of the MPRD Act read with regulations 53 and 54 of the regulations
published under the MPRD Act (“MPRD Regulations”), previously regulated the
obligation of a Holder of, inter alia, a Mining Right to make the prescribed financial
provision for the rehabilitation or management of negative environmental impacts
(“Financial Provision”) associated with mining operations (“Environmental
Rehabilitation”).
rr) As part of the introduction of the so-called ‘One Environmental System’, section 41
of the MPRD Act was repealed with effect from 7 June 2014 and financial
provision for Environmental Rehabilitation is now regulated by the National
Environmental Management Act (“NEMA”), as amended.
ss) The amendments to NEMA provide that where a Holder of, inter alia, a Mining
Right fails to rehabilitate or to manage any impact on the environment, or is unable
to undertake such rehabilitation, the Minister of Mineral Resources (Minister
Zwane) (and not the Holder of the Mining Right) may use all or part of the financial
provision for the Environmental Rehabilitation in question. A Holder of a Mining
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Right is therefore prohibited from accessing or “drawing down” from the funds that
have, for example, been placed in a rehabilitation trust for Environmental
Rehabilitation (“Rehabilitation Trust”).
tt) On 20 November 2015, the Regulations pertaining to the Financial Provision for
Prospecting, Exploration, Mining or Production Operations (“Financial Provision
Regulations”) were published in order to give effect to the requisite provisions of
NEMA. The Financial Provision Regulations outline the manner in which financial
provision is to be determined from 20 November 2015. As at the date of this
article, all mining companies are required to comply with the Financial Provision
Regulation.
uu) It must be noted that the Financial Provision Regulations expressly provide that
Rehabilitation Trusts may not be used for, inter alia, financial provision which is
required for Annual Rehabilitation and Mine Closure Rehabilitation and may only
be used for purposes of Future Rehabilitation. There was no such limitation under
the MPRD Act. Non-compliance with the Financial Provision Regulations is a
criminal offence and both the company and the directors of the company may be
held criminally liable for such non-compliance.
vv) It should be noted that according to the Financial Provision Regulations-' where an
applicant or holder of a right or permit makes use of the financial vehicle as
contemplated in regulation 8 (1) (b), any interest earned on the deposit shall first
be used to defray bank charges in respect of that account and thereafter
accumulate and form part of the financial provision. In neither of the funds held in
the Bank of Baroda accounts was the interest reinvested for the purposes of
capital growth. The interest is transferred back into the Bank of Baroda account
and utilised. It seems as if the interest serves as a direct benefit to the Bank of
Baroda and not the owner of the invested funds as it would be in terms of a normal
capital investment.
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xx) It seems as if the Call accounts 03-7881044497-359 / 360 / 361 and 362 was
selected by the new owners of the funds and or the Bank of Baroda to receive and
invest the ORTF funds at preferential interest rates of 6.75% in the 359 account
and 9.02% in the remaining accounts.
yy) It appears that the funds were not ring fenced for the purposes of investment and
capital growth. The interest payments on all the investment accounts appears to
not have been reinvested and recapitalised but were transferred to the Baroda
Main account and utilised.
zz) The R500m that was regarded as a borrowing repayment between the Baroda
Main account and the Baroda Durban Branch was only made possible because of
and as a result of the ORTF fund that was transferred to the Bank of Baroda Main
account.
aaa) The conduct and subsequent transfers of the R500m in the Baroda Durban Branch
account is also deemed to be unusual and clearly indicates that the funds were not
ring fenced for investment purposes and was then transferred into another Call
account 03-7314502498-1069. In this regard, the splitting of the funds into several
call account reduced the investment return potential on the lump sum that was to
be invested if the funds were deemed to be for investment purposes.
bbb) This conduct with regards to the administration of the rehabilitation fund, appears to
not be in line with the provisions of the MRPDA. NEMA or the Income Tax Act. It is
unclear as to why the Department of Mineral Resources authorised the transfer of
these funds to the Bank of Baroda.
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ccc) The conduct of the Bank of Baroda in relation to the purchase of all shares in OCH
by Tegeta and the rehabilitation fund has not been evaluated. This aspect will form
part of the next phase of the investigation.
6.4. Whether any state functionary in any organ of state or other person acted
unlawfully, improperly or corruptly in connection with exchange of gifts in
relation to Gupta linked companies or persons
a) This issue/aspect of the investigation will be further investigated in the next phase of
this project.
6.5. Whether any person/entity was prejudiced due to the conduct of the
SOE
b) Eskom had a long standing contract with OCH and OCM for the supply of coal to
the Hendrina power station. OCM is supplying coal to Hendrina power station at a
below cost value and was thus losing, at the time of going into business rescue, an
approximate amount of R100 miilion per month.
c) Both Eskom and OCH/OCM, had long standing disputes with each other, Eskom
with their claim for penalties and OCH/OCM with their hardship claim as well as the
claim over whether the specifications of coal would change over time. These
disputes needed to be resolved and it is clear from the original CSA and
subsequent addendums that both parties would engage in arbitration should they be
unable to come to a conclusion. Both parties, opted for a “Co-operation Agreement”
instead of arbitration. By entering into this agreement, it is clear that both parties
wished to find an amicable resolution to their disputes.
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d) This agreement between both parties culminated in a Draft Fourth Addendum to the
CSA be drafted between the parties. This agreement was drafted with the input of
both parties being Eskom and OCH/OCM. This agreement was approved by the
relevant procurement as well as Board Tender Committee. However, when approval
was needed from the full Board, they declined and stated that the matter should
obtain the consent of the Acting Group Executive, who at the time was Mr Molefe,
Mr Molefe refused the new agreement, and wished to hold OCH/OCM to the current
contractual terms.
e) When looking at the long standing relationship Eskom has with OCM/OCH as well
as the efforts by both parties (by way of the co-operation agreement) to come to an
amicable conclusion, it appears that Eskom wished to negotiate new terms with
OCM. On the information provided, the only party who probably stood to benefit
from OCM/OCH being financially distressed and being in business rescue, would be
a prospective suitor. In this case the prospective suitor was Tegeta.
f) The Eskom Board has a fiduciary obligation to uphold the values enshrined in
section 217 of Constitution as well as the PFMA.
g) It is unclear as to why the Board of Eskom referred the Draft Fourth Addendum for
the CSA back to the Group Executive for approval. Mr Molefe, in his response to
me, states that this was a commercial decision taken by him together with the
negotiation team, I find this to be peculiar as this Draft Addendum was tabled for
approval by the Board Tender Committee and thereafter for approval by the full
Board of Eskom.
h) It should be noted that Mr Pamensky, Ms Carrim and Ms D Naidoo were all present
during the above mentioned meeting on 23 April 2015 when the Draft Fourth
Addendum was not signed and referred to Mr Molefe.
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i) Mr Molefe’s relationship with the Gupta family as well as the directors of Tegeta
cannot be ignored, there was a firm line of communication between Mr Ajay Gupta
and Mr Molefe.
j) The only individuals/entities who stood to benefit from OCM/OCH not being
awarded a revised contract by Eskom was the subsequent prospective suitors who
could now purchase an entity in business rescue.
m) The arbitration/summons coupled with the significant losses under the Hendrina
CSA, forced the directors of OCM/OCH to place both companies in business
rescue. It should be noted that the only reason for OCH being placed in business
rescue is that OCH issued a guarantee to Eskom for the performance of OCM in
terms of the CSA.
n) Once in business rescue, there were numerous attempts made by OCM and the
BRP’s to renegotiate new terms of the CSA in order to save OCM from being
liquidated.
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o) Eskom refused to re-negotiate terms with OCM and forced compliance in terms of
the CSA as well as sought to enforce the penalty levied against OCM.
p) The BRP’s therefore had no option but to look for possible entities to purchase
OCM. Pembani and Tegeta emerged as the front runners for concluding a possible
purchase.
q) Pembani was unable to get Eskom to consent to the sale of OCM and thus Tegeta
was the only remaining entity who wished to purchase OCM.
r) According to Eskom, they were not involved in the process regarding the sale of
Eskom, other than to agree to the cession of the CSA to Tegeta.
s) This seems to contradict their version as I noted an Eskom letter dated 5 November
2015 stated that “It may also be an appropriate time for Eskom to review the
engagement with Glencore from a portfolio perspective”. Furthermore at a meeting
held at Eskom on 24 November 2015 after a meeting with OCM, the BRP’s, and
Tegeta, made the statement that OCM could not be sold alone, and needed to be
sold with the rest of the shares held in OCH as this would allow OCM to be
subsidised by the Koornfontein mine and Optimum Coal Terminal.
t) Up until that point, the BRP,OCH and Tegeta were only in discussions to sell OCM.
The conduct of Eskom, in essence, forced the sale of all shares held by OCH. As
Eskom would not consent to a standalone transaction with OCM being the only
entity sold.
u) Due to guarantee held by Eskom over OCH, Eskom wielded an extreme amount of
power during all negotiation processes over a possible sale, as consent needed to
be provided from Eskom.
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v) Further evidence of the apparent prejudice caused by Eskom, is that once the sale
agreement was signed in December 2015, Tegeta appears to have easily managed
to secure lucrative contracts to supply coal to Arnot Power Station with coal from
OCM. This essentially increased the financial stability of OCM and decreased
Tegeta’s obligations of PCF to OCM.
w) In light of the apparent conflicts identified earlier, the lucrative contracts awarded to
Tegeta to supply coal and the true nature of the prepayment it appears that there
may have been an attempt by Eskom and Tegeta to force the sale of all shares in
OCH to Tegeta.
y) Furthermore, as mentioned above, Tegeta has entered into the sale of Optimum
Coal Terminal and, according to Mr Ajay Gupta, stands to make a profit of
approximately $150 million. It is unclear as to why Eskom has now allowed Tegeta
to sell an asset which it previously deemed vital to subsidise OCM. Eskom had
made its point clear in that OCM, Koornfontein and Optimum Coal Terminal needed
to be kept together and cannot be sold separately.
z) This appears to have caused prejudice to Glencore who put into business rescue
and ultimately forced to sell all its shares held in OCH. Glencore and the BRP’s
were forced into selling all shares in OCH by Eskom.
Rehabilitation funds
bb) It is clear, that if a rehabilitation trust fund is not managed properly, the area
surrounding the mine will not be rehabilitated adequately. The Republic of
South Africa is thus caused prejudice in the event the fund is not managed
correctly.
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7. OBSERVATIONS
Having considered the evidence uncovered during the investigation against the
relevant regulatory framework, I make the following observations:
7.1.1 President Zuma was required to select and appoint Ministers lawfully
and in compliance with the Executive Ethics Code.
7.1.2 It is worrying that the the Gupta family was aware or may have been
aware that Minister Nene was removed 6 weeks after Deputy Minister
Jonas advised him that he had been allegedly offered a job by the
Gupta family in exchange for extending favours to their family business.
7.1.3 Equally worrying is that Minister Van Rooyen who replaced Minister
Nene can be placed at the Saxonwold area on atleast seven occations
including on the day before he was announced as Minister. This looks
anomalous given that at the time he was a Member of Parliament
based in Cape Town.
7.1.4 Another worrying coincidence is that Minister Nene was removed after
Mr Jonas advised him that he was going to be removed.
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7.1.5 If the Gupta family knew about the intended appointment it would
appear that information was shared then in violation of section 2.3(e) of
the Executive Ethics Code which prohibits members of the executive
from the use of information received in confidence in the course of their
duties or otherwise than in connection with the discharge of their duties.
7.1.7 In view of the fact that the allegation that was made public included Mr
Jonas alleging that the offer for a position of Minister was linked to him
being required to extend favours to the Gupta family. Failure to verify
such allegation may infringe the provisions of Section 34 of Prevention
and Combatting of Corrupt Activities Act, 12 of 2004 which places a
duty on persons in positions of authority who knows or ought
reasonably to have known or suspected that any other person has
committed an offence under the Act must report such knowledge or
suspicion or cause such knowledge or suspicion to be reported to any
police official.
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A similar duty is imposed and possibly violated in relation to the allegations that
were made by Mr Maseko about his removal. The same to applies to persistent
allegations regarding an alleged cozy relationship between Mr Brian Molefe and
the Gupta family. In this case it is worth noting that such allegations are backed
by evidence and a source of concern that nothing seems to have been done
regardless of the duty imposed by Section 195 of the Constitution on relevant
State functionaries.
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While not relevant to the alleged influence of the Gupta family, the allegations
made by Ms Hogan also deserve a closer look to the extent that they suggest
Executive and party interference in the management of SOEs and appointments
thereto.
7.4. Whether President Zuma has enabled or turned a blind eye, in violation of
the Executive Ethics Code, to alleged corrupt practices by the Gupta
family and his son in relation to allegedly linking appointments to quid
pro quo conditions
There seems to be no evidence showing that Mr Jonas’ allegations that he was offered
money and a ministerial post in exchange for favours were ever investigated by the
Executive. Only the African National Congress and Parliament seemed to have
considered this worthy of examination or scrutiny.
If this observation is correct then the provisions of section 2.3 (c) of the Executive
Ethics Code may have been infringed as alleged.
The allegations raised by both Messrs Jonas and Maseko are relevant as is action
taken and/or not taken in relation thereto.
Deputy Minister Jonas would be regarded as a liar and publicly humiliated unless he is
vindicated in his public statement that Mr Ajay Gupta offered the position of Minister of
Finance to him with the knowledge of President Zuma who subsequently denied such
offer. Consequently the people of South Africa, who Deputy Minister Jonas took into his
confidence in revealing this, would lose faith in open, democratic and accountable
government if President Zuma’s denials are proven to be false.
7.7. Whether any state functionary in any organ of state or other person acted
unlawfully, improperly or corruptly in connection with the appointment or
removal of Ministers and Boards of Directors of SOEs
a) It appears that the Board at Eskom was improperly appointed and not in line
with the spirit of the King III report on good Corporate Governance.
b) Even though certain conflicts may have arisen after the Board was
appointed, there should have been a mechanism in place to deal with the
conflicts as they arose and managed actual or perceived bias.
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d) It appears as though no action was taken on the part of the Minister of Public
Enterprise as Government stakeholder to prevent these apparent conflicts.
7.8. Whether any state functionary in any organ of state or other person acted
unlawfully, improperly or corruptly in connection with the award of state
contracts or tenders to Gupta linked companies or persons
b) It appears that Minister Zwane’s conduct may not be in line with section 96(2)
of the Constitution and section 2 of the Executive Members Ethics Act.
c) In light of the extensive financial analysis conducted, it appears that the sole
purpose of awarding contracts to Tegeta to supply Arnot Power Station, was
made solely for the purposes of funding Tegeta and enabling Tegeta to
purchase all shares in OCH. The only entity which appears to have benefited
from Eskom’s decisions with regards to OCM/OCH was Tegeta which
appears to have been enabled to purchase all shares held in OCH. The
favourable payment terms given to Tegeta (7 days) need to be examined
further. OCM clearly had 30 day payment terms with Tegeta for the supply of
coal to Arnot Power Station, and Eskom appears to have been aware of this.
It also appears that Tegeta did not meet all its obligations to OCM as OCM
was owed R 148,027,783.91 by Tegeta as at 31 July 2016 and an amount of
R 289,842,376.00 as at 31 August 2016.
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e) It appears that the Eskom Board did not exercise a duty of care, which may
constitute a violation of section 50 of the PFMA.
f) Eskom awarding of the initial contracts to Tegeta to supply coal to the Majuba
Power Station will form part of the next phase of the investigation.
7.9. Whether any state functionary in any organ of state or other person acted
unlawfully, improperly or corruptly in connection with the extension of
state provided business financing facilities to Gupta linked companies or
persons;
a) The prepayment to Tegeta in the amount R659 558 079.00 (six hundred and
fifty nine million five hundred and fifty eight thousand seventy nine rand)
inclusive of VAT, may not be in line with the PFMA. This is evidenced in the
BRP’s section 34 report in which it is stated that the prepayment was not
used to fund OCM, it is further emphasised in the financial analysis which
shows the prepayment was used entirely for the purposes of funding the
purchase of all shares in OCH. On 11 April 2016. Tegeta informed the
BRP’s, Glencore and who in turn informed the Loan Consortium that they
were R600 million short, on the very same day, Eskom held an urgent Board
Tender Committee meeting at 21:00 in the evening to approve the
prepayment which was R659 558 079.00 (six hundred and fifty nine million
five hundred and fifty eight thousand seventy nine rand and 38 cents)
inclusive of VAT.
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b) The Eskom Board does not appear to have exercise a duty of care or acted,
which may constitute a violation of section 50 of the PFMA.
d) It appears that the manner in which the rehabilitation funds are currently
being handled with the Bank of Baroda, are in contravention of section 24P
of NEMA as well as section 7 of the financial regulations which provide that
that the financial provision must be “equal to the sum of the actual costs of
implementing the plans and report contemplated in regulation 6 and
regulation 11(1) for a period of at least 10 years forthwith”. This cannot be
guaranteed by the Bank of Baroda or Tegeta as the funds are consistently
moved around between accounts as well as other branches, Tegeta
accordingly may have contravened section 7 of the financial regulations
which is an offence under section 18 of the financial regulations which in turn
is liable to a fine not exceeding R10 million or to imprisonment not exceeding
10 years or to both.
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the interest serves as a direct benefit to the Bank of Baroda and not the
owner of the invested funds as it would be in terms of a normal capital
investment. Tegeta may have contravened section 9(5) of the financial
regulations.
f) By not treating the rehabilitations funds in the prescribed manner and for the
prescribed purpose, Tegeta may be in contravention of section 37A of the
Income Tax Act, and the Commissioner where section 37A has been
contravened in any manner.
g) The Commissioner may include an amount equal to twice the market value of
all property held in the rehabilitation fund, on the date of contravention, in the
rehabilitation fund's taxable income, and include the amount that the mining
company contributed to the rehabilitation fund (and claimed a tax deduction
for), in the mining company's income, to the extent that the property in the
rehabilitation fund was directly or indirectly derived from cash paid to the
rehabilitation fund. This is potentially a sum of double the amount of
R280.000.000.00 which was available in the KRTF and a sum of double the
amount R1,469.916.933.63 which was available in the ORTF.
h) The Bank of Baroda in relation to the purchase of all shares in OCH by Tegeta and
the rehabilitation fund. This will form part of the next phase of the investigation.
7.10. Whether any state functionary in any organ of state or other person acted
unlawfully, improperly or corruptly in connection with exchange of gifts in
relation to Gupta linked companies or persons;
a) This issue will be attended to further in the next phase of the investigation.
7.11. Whether any person/entity was prejudiced due to the conduct of the SOE.
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b) It appears that the conduct of Eskom was solely to the benefit of Tegeta, in
that they forced the sale of OCH to Tegeta by stating that OCM could be sold
alone. Thereafter, they have allowed Tegeta to proceed with the sale of a
portion of OCH in the form of the Optimum Coal Terminal. This may
constitute a contravention of section 50(2) of the PFMA in that they acted
solely for the benefit of one company.
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8. REMEDIAL ACTION
To the President:
8.2. The investigation has proven that the extent of issues it needs to traverse
and resources necessary to execute it is incapable of being executed fully by
the Public Protector. This was foreshadowed at the commencement of the
investigation when the Public Protector wrote to government requesting for
resources for a special investigation similar to a commission of inquiry
overseen by the Public Protector. This investigation has been hamstrung by
the late release which caused the investigation to commence later than
planned. The situation was compounded by the inadequacy of the allocated
funds (R1.5 Million).
8.3. The President has the power under section 84(2)(f) of the Constitution to
appoint commissions of enquiry however, in the EFF Vs Speaker of
Parliament the President said that: “I could not have carried out the
evaluation myself lest I be accused of being judge and jury in my own case”.
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8.6. The judge to be given the power to appoint his/her own staff and to
investigate all the issues using the record of this investigation and the report
as a starting point.
8.7. The commission of inquiry to be given powers of evidence collection that are
no less than that of the Public Protector.
8.8. The commission of inquiry to complete its task and to present the report with
findings and recommendations to the President within 180 days. The
President shall submit a copy with an indication of his/her intentions
regarding the implementation to Parliament within 14 days of releasing the
report,
8.9. Parliament to review, within 180 days, the Executive Members’ Ethics Act to
provide better guidance regarding integrity, including avoidance and
management of conflict of interest. This should clearly define responsibilities
of those in authority regarding a proper response to whistleblowing and
whistleblowers. Consideration should also be given to a transversal code of
conduct for all employees of the State.
8.10.The President to ensure that the Executive Ethics Code is updated in line
with the review of the Executive Members’ Ethics Act.
8.11.The Public Protector, in terms of section 6 (4) (c) (i) of the Public Protector
Act, brings to the notice of the National Prosecuting Authority and the DPCI
those matters identified in this report where it appears crimes have been
committed.
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9. MONITORING
9.1 The Public Protector will monitor the implementation of the remedial action.
9.2 The Secretary of Parliament and the Diretor General in the Presidency are to
provide periodic implementation reports to the Public Protector.
______________________________
ADV THULI N MADONSELA
PUBLIC PROTECTOR OF THE
REPUBLIC OF SOUTH AFRICA
DATE: 14 OCTOBER 2016
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